Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend

image text in transcribed
image text in transcribed
4. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 4.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (Ds) and the discounted value of the dividends expected to be paid 10,20 , and 50 vears from now (D10,D20,Ds) ). Assume that the stock's required return ( rs) is 5.40%. Note: Carry and round the calculations to four decimal places. Using the blue curve (circle symbols), plot the future value of each of the expected future dividends for years 10, 20, and 50, The resulting curve will illustrate how the FV of a particular dividend payment will increase depending on how far from today the dividend is expected to be received. Note: Plound each of the discounted values of the dividends to the nearost tenth decimal place before plotting it on the oraph. You can mouse over the points in the graph to see their coordinates. Using the blue curve (circle symbols), ploc the future value of each of the expected future dividends for years 10.20, and 50 . The resulting curve will illustrate how the FV of a particulor dividend parment will increaso depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting if on the graph. You can inouse over the points in the groph to see their coordinates

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

QFinance The Ultimate Resource

Authors: Various Authors

1st Edition

1849300003, 978-1849300001

More Books

Students also viewed these Finance questions