Question
A stocks current dividend is $1.00, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a
A stocks current dividend is $1.00, and dividends are expected to grow at a constant rate of 2.70% 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 PV of the dividend paid today (D0D0) and the PV of the dividends expected to be paid 10, 20, and 50 years from now (D10D^10, D20D^20, and D50D^50). Assume that the stocks required return (rsrs) is 8.40%.
Time Period | Expected Dividends | |
---|---|---|
Future Value | Present Value | |
Now | ||
End of Year 10 | ||
End of Year 20 | ||
End of Year 50 |
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