Question
6. You own a stock that you are considering selling. The current dividend is $1.10/share. Your required return for this stock is 7%. The current
6. You own a stock that you are considering selling. The current dividend is $1.10/share. Your required return for this stock is 7%. The current market price of the stock is $23.50. Consider each of the following situations separately. Please show work.
a. If the dividend is fixed, what is the value of the stock? Should you sell it?
b. If the dividend grows at 2% indefinitely, what is the value of the stock? Should you sell it?
c. If the dividend grows at 5% for the first two years and then 2% indefinitely, what is the value of the stock? Should you sell it?
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