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Suppose a stock has just paid a $6 per share dividend. The dividend is projected to grow at 20% next year, then 10% for one
Suppose a stock has just paid a $6 per share dividend. The dividend is projected to grow at 20% next year, then 10% for one year, and then 5% indefinitely. The required return is 6.8%. A person who buys the stock at year 2 will receive the dividends of year 3 onward, that is $8.316 at year 3 , followed by all subsequent dividends which grow at a rate of 5%. How much will the price of the stock be at year 2 ? (The question asks for the price at which the stock will sell at year 2. rather than the present value of that price at year 2)
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