Question:

Hatstand and Bandstand Inc. stock is selling for $38. The company has been maintaining a constant growth rate of dividends of 5 percent.If the required rate of return for this company is 14 percent, what was the most recent dividend paid by the company?

5.32

3.06

2.90

3.42

4.11

3.26

I had selected 3.42 because I had solved using the following formula: D= 38 X (.14-.05) =3.42.

The answer is actually 3.26.

Would someone be able to explain to me where I went wrong so that I know how to solve this in the future?

Thanks!