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Suppose that the last dividend, which the firm just pald on its stock, is Do - $1.00 and the stocks last closing price is $26.25.
Suppose that the last dividend, which the firm just pald on its stock, is Do - $1.00 and the stocks last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is falmly priced, that is, it is in equilibrium, and the most appropriate required rate of return is r, = 9.00% The dividend received in period 1 is D = $1.00 x (1 +0.0500) = $1.05 and the estimated Intrinsic value in the same period is based on the constant growth model: P DO Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period, Dividend Price py of dividend at 9.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $26.25 1 1.05 2 3 4 5 The dividend yield for period 1 is and it will cach period The capital gain yield expected during period 1 is and it will each period If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out to infinity? 4.00 5.00% 9.00% Suppose that the last dividend, which the firm just pald on its stock, is Do - $1.00 and the stocks last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is falmly priced, that is, it is in equilibrium, and the most appropriate required rate of return is r, = 9.00% The dividend received in period 1 is D = $1.00 x (1 +0.0500) = $1.05 and the estimated Intrinsic value in the same period is based on the constant growth model: P DO Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period, Dividend Price py of dividend at 9.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $26.25 1 1.05 2 3 4 5 The dividend yield for period 1 is and it will cach period The capital gain yield expected during period 1 is and it will each period If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out to infinity? 4.00 5.00% 9.00%
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