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A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals

A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals

Essentials Of Investments
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
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Intro A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals Submit Part 2 In 6 years, the P/E ratio is expected to be 16 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio? 1+ decimals Submit
Transcribed Image Text:Intro A stock just paid an annual dividend of $2.4. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6. The required rate of return is 12%. Part 1 What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years? 1+ decimals Submit Part 2 In 6 years, the P/E ratio is expected to be 16 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio? 1+ decimals Submit
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