Suppose that D$0=$$$1\mathrm{.}00$

and the stock$$s last closing price is $$15\mathrm{.}85$

$.$ It is expected that earnings and dividends will grow at a constant rate of g$=3\mathrm{.}50\%$

per year and that the stock$$s price will grow at this same rate. Let us assume that the stock is fairly priced, that is$,$ it is in equilibrium, and the most appropriate required rate of return is rs$=10\mathrm{.}00\%$

$.$

The dividend received in period $1$ is D$1=$$$1\mathrm{.}00\backslash$times $(1+0\mathrm{.}0350)=$$$1\mathrm{.}04$

and the estimated intrinsic value in the same period is based on the constant growth model: P$1=$D$2$rs$$g

$.$

Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.

Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period.

Period

Dividend

Price

PV of dividend at $10\mathrm{.}00\%$

$($Dollars$)$

$($Dollars$)$

$($Dollars$)$

$0$ $$1\mathrm{.}00$ $$15\mathrm{.}85$

$11\mathrm{.}03$

$2$

$3$

$4$

$5$

The dividend yield for period $1$ is and it will each period.

The capital gain yield expected during period $1$ is and it will each period.

If it is forecasted that the total return equals $10\mathrm{.}00\%$ for the next $5$ years, what is the forecasted total return out to infinity?

$3\mathrm{.}50\%$

$6\mathrm{.}50\%$

$10\mathrm{.}00\%$

$13\mathrm{.}50\%$