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Consider a security that pays annual dividends. It just paid $2.50 dividends per share and the next dividend will be paid in 1 year. The
Consider a security that pays annual dividends. It just paid $2.50 dividends per share and the next dividend will be paid in 1 year. The dividend is expected to grow at the rate of 6% per annum for the next four years. After the fourth year, the dividend is expected to grow at a terminal rate of 1% per year forever. Find the fair value fo the security if the annual cost-of-capital is 14%.
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Step: 1
The fair value of the security can be determined using the Gordon Growth Model GGM This model is used to calculate the intrinsic value of a stock base...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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