(Dividend discount Model)

Invescos S&P 500 ETF (SPIAX) currently trades at a price of $50.61 and just paid an (annual) dividend of $0.43.

• The long-term historical growth rate of dividends for the S&P 500 is 5.5%. Assume the dividends grow at 5.5% in perpetuity and the discount rate is 7%, what is your estimated price of SPIAX?
• Over the last three years, dividends for the S&P 500 have grown at a rate of 7%. Assume that dividends grow at this rate for the next three years. What perpetuity dividend growth rate is needed to justify its current price of $50.61? Assume the discount rate is still 7%. Set up the spreadsheet to find a price given a random terminal growth rate, then try different values of the terminal growth rate until you arrive at the answer.