1.- You are trying to value a firm's equity. They pay quarterly dividends, with the next dividend payment of $1.50 due later today. They will increase this dividend by $0.12 every quarter for the next year. After that, they will increase dividends by 4.4% APR, compounded quarterly into perpetuity. The discount rate for this stock is 16.4% APR, compounded quarterly. a. What should be the price of this stock? b. You purchase the stock at the price above. But right after you purchase the stock (and before they are supposed to pay their dividend), they announce that they are increasing the dividend today to $1.75. They also announce that they will increase their dividends by $0.16 each quarter for the next year, and then dividends will grow by 4.8% APR, compounded quarterly, into perpetuity. If you decide to sell immediately after this news (and before the dividend is paid later today), what return would you have earned during the few moments that you owned this stock?T
1.- You are trying to value a firm's equity. They pay quarterly dividends, with the next dividend payment of $1.50 due later today. They will increase this dividend by $0.12 every quarter for the next year. After that, they will increase dividends by 4.4% APR, compounded quarterly into perpetuity. The discount rate for this stock is 16.4% APR, compounded quarterly. a. What should be the price of this stock? b. You purchase the stock at the price above. But right after you purchase the stock (and before they are supposed to pay their dividend), they announce that they are increasing the dividend today to $1.75. They also announce that they will increase their dividends by $0.16 each quarter for the next year, and then dividends will grow by 4.8% APR, compounded quarterly, into perpetuity. If you decide to sell immediately after this news (and before the dividend is paid later today), what return would you have earned during the few moments that you owned this stock?T
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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I need help with this problem and how to set it up in excel with formulas.
Transcribed Image Text:1.- You are trying to value a firm's equity. They pay quarterly dividends, with the next
dividend payment of $1.50 due later today. They will increase this dividend by $0.12
every quarter for the next year. After that, they will increase dividends by 4.4% APR,
compounded quarterly into perpetuity. The discount rate for this stock is 16.4% APR,
compounded quarterly.
a. What should be the price of this stock?
b.
You purchase the stock at the price above. But right after you purchase the stock
(and before they are supposed to pay their dividend), they announce that they are
increasing the dividend today to $1.75. They also announce that they will increase
their dividends by $0.16 each quarter for the next year, and then dividends will grow
by 4.8% APR, compounded quarterly, into perpetuity. If you decide to sell
immediately after this news (and before the dividend is paid later today), what return
would you have earned during the few moments that you owned this stock?T
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