Question
1. a. What is the value of a stock that is expected to pay a constant dividend of $2 per year if the required return
1. a. What is the value of a stock that is expected to pay a constant dividend of $2 per year if the required return is 15%?
b. What if the company starts increasing dividends by 3% per year, beginning with the next dividend? The required return stays at 15%.
2. XYZ stock currently sells for $50 per share. The next expected annual dividend is $2, and the growth rate is 6%. What is the expected rate of return on this stock? If the required rate of return on this stock were 12%, what would the stock price be, and what would the dividend yield be?
3. What will be your expected return on a $140.00 stock that just paid a $8.00 dividend and is expected to grow at 11% forever?
4. A company is expected to pay dividends of $1.80, $1.89 and $1.98 over the next three years and the growth rate is expected to remain a constant 1% after year three. What would you pay for the stock with a 12% required return?
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