Question
Stock Valuation Problem: The English Corporation has a beta of 1.30x, the risk-free rate of interest is currently 9% and the required return on the
Stock Valuation Problem:
The English Corporation has a beta of 1.30x, the risk-free rate of interest is currently 9% and the required return on the market portfolio is 12%.The Company plans to pay a dividend of $1.30 per share in the coming year and anticipates that future dividends will increase at an annual rate consistent with that experienced over the 2006 - 2009 period as shown below:
YearDividend per share
2009$1.25
2008$1.17
2007$1.15
2006$1.10
(I calculate the compound annual growth rate of dividends to be 4.35%, as follows :)
Financial calculator keystrokes:
1.10+|-PV
3N
0PMT
1.25FV
CPTI/Y=4.35% USING the CONSTANT DIVIDEND GROWTH MODEL TO ESTIMATE THE VALUE OF ENGLISH COMPANY COMMON STOCK
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