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Sam is considering buying a share with the following expected dividends: Time (yrs) 0 1 2 3 Dividend ($) 4.00 4.10 4.15 4.20 The dividend
Sam is considering buying a share with the following expected dividends: Time (yrs) 0 1 2 3 Dividend ($) 4.00 4.10 4.15 4.20 The dividend is expected to grow by 2.5% pa in perpetuity after Year 3. Therefore: The dividend at t=4 will be $4.20(1+0.025) The dividend at t=5 will be $4.20(1+0.025)^2, and so on. Shareholders' required return is 6% pa. The required return and the growth rate are effective annual returns. Calculate the price of the stock in two and a half years (t=2.5)
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