Question
Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for
Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next 5 years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.
1. Calculate the dividends for years 1,2 and 3.
2. What is the price of the stock in year 5?
3. Calculate the present value today of dividends for years 1 to 5.
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Investments An Introduction
Authors: Herbert B Mayo
9th Edition
324561385, 978-0324561388
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