A stock is expected to pay its first annual dividend in 3 years. The dividend is expected to stay constant at $1.4 per year for 18 years and then grow at 5% annually forever. The required rate of return is 14%. (hint: non-standard dividends; two-stage of dividends) Part 1 What is the PV today of the first-stage dividends? (18 years of constant $1.4 dividend per year is the first stage) Part 2 What is the PV today of the second-stage dividends? (dividends after the 18 years of constant dividend is the second stage) Part 3 What should be the stock price now?
A stock is expected to pay its first annual dividend in 3 years. The dividend is expected to stay constant at $1.4 per year for 18 years and then grow at 5% annually forever. The required rate of return is 14%. (hint: non-standard dividends; two-stage of dividends) Part 1 What is the PV today of the first-stage dividends? (18 years of constant $1.4 dividend per year is the first stage) Part 2 What is the PV today of the second-stage dividends? (dividends after the 18 years of constant dividend is the second stage) Part 3 What should be the stock price now?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A stock is expected to pay its first annual dividend in 3 years. The dividend is expected to stay constant at $1.4 per year for 18 years and then grow at 5% annually forever. The required
Part 1
What is the PV today of the first-stage dividends? (18 years of constant $1.4 dividend per year is the first stage)
Part 2
What is the PV today of the second-stage dividends? (dividends after the 18 years of constant dividend is the second stage)
Part 3
What should be the stock price now?
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