Question
John Bank just issued some new stock. The stock will pay a $9 annual dividend in perpetuity, beginning six years from now. If the required
John Bank just issued some new stock. The stock will pay a $9 annual dividend in perpetuity, beginning six years from now. If the required return on this stock is 7 percent throughout the whole time horizon, how much does a share of stock cost today?
Continuing the Question, in addition to the $9 dividend starting six years later, John Bank decided to pay a lower amount of $6 annual dividend before it. That is, they will pay a $6 annual dividend each year in the next five years, and then starting six years from now, they will pay $9 a year. What is the price of one share of this stock today? Assume that the required return is still 7 percent throughout the whole time horizon.
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