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3. Investors currently expect the dividends per share of the Phenomenal Corporation will grow at a rate of 8 percent per year for the foreseeable
3. Investors currently expect the dividends per share of the Phenomenal Corporation will grow at a rate of 8 percent per year for the foreseeable future. Dividends next year are expected to be $2.40 per share. The risk of Phenomenal's dividend stream is such that investors require a 10 percent rate of return on the stock. a. What is the price of Phenomenal's common stock? b. Suppose that new information on Phenomenal comes into the market such that the expected growth rate is reduced to 7 percent (but the expected dividend next year is still $2.40). What will be the new price of Phenomenal ' s stock? c. What is the percentage change in the stock price based on the results in a and b? What does this tell you about the sensitivity of stock prices to changes in expectations
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