Question
Sophie Maddox invests in 50 shares of Spidey Comics Inc. Spideys stock offers a current dividend of $2 per share, which grows at the rate
Sophie Maddox invests in 50 shares of Spidey Comics Inc. Spideys stock offers a current dividend of $2 per share, which grows at the rate of 4% p.a. indefinitely. Sophia expects to sell her shares at the end of year 5 and requires a return of 11% on her investment. Given this information; i) Compute the current price of Spidey Inc.s shares ii) Compute the price of Spidey Inc.s shares at the end of 5 years iii) Compute Sophias overall percentage return on her investment for the 5-year period, assuming she receives dividends for time 0 through time 5 iv) Compute the growth rate in Spideys stock price v) What relationship do you observe between the stock price and growth in dividends, assuming all else remains the same.
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