Question
Stock A experiences non-constant growth for the first 3 years and subsequently it experiences constant growth. The issuer of stock A just paid a dividend
Stock A experiences non-constant growth for the first 3 years and subsequently it experiences constant growth. The issuer of stock A just paid a dividend of USD 3 per share. The growth rate of dividend during the first 3 years of supernormal growth is expected to be 0.07. From the beginning of year 4, the growth rate of dividend is expected to stabilize at 0.08 for ever. The market requires a return of 0.14 for stock A. Calculate the price of stock A today. Give an answer of 0.000. The formulae are P - D,/1+r)' + D2(1+r2 + D3/(1+r)3 + Da/r-gX1+r3 and Dn- (1+ g,)*Dn+1
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