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my question posted, i believe expert did it wrong. wouldn't it be to the power of ^6 not ^7 since we want stock price in
my question posted, i believe expert did it wrong. wouldn't it be to the power of ^6 not ^7 since we want stock price in year 6?
Suppose you know that a company's stock currently sells for $56 per share and the required return on the stock is 8%. You also know that the total return on the stock is evenly divided betwen gains yield and dividend yield. If the company's policy is to always maintain a constant growth rate in its dividends, what is the current dividend per share (DO)? What is the expected stock price six years from now? Expert Answer Step-by-step Step 1/1 Required return = Dividend yield + growth rate 8%=2 growth rate growth rate =4% Stock price = Current Dividend * (1+ growth rate )/ (Required return growth rate ) $56= Current Dividend * (1+4%)/(8%4%) $56= Current Dividend * (1+4%)/4% $564%= Current Dividend * (1+4%) Current Dividend =$2.15 Stock price in year 6= Current Dividend * (1+growthrate)7/ (Required return - growth rate) Stock price in year 6=$2.15(1+4%)/(8%4%) Stock price in year 6=$70.73 Final answer Required return = Dividend yield + growth rate 8%=2 growth rate growth rate =4% Stock price = Current Dividend (1+ growth rate )/( Required return growth rate ) $56= Current Dividend * (1+4%)/(8%4%) $56= Current Dividend * (1+4%)/4% $564%= Current Dividend * (1+4%) Current Dividend =$2.15 Stock price in year 6= Current Dividend * (1+growthrate)7/ ( Required return growth rate ) Stock price in year 6=$2.15(1+4%)/(8%4%) Stock price in year 6=$70.73Step by Step Solution
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