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The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00, and dividends are expected to grow at
The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00, and dividends are expected to grow at a constant rate of 6.8% per year. The value of a stock should be the PV of all dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the PV of the dividend paid today (D0) and the PV of the dividends expected to be paid 10 and 20 years from now ( D10 and D20 ). Assume that the stock's required return (rs) is 12.4%. Using the orange curve (square symbols), plot the PV of these dividends on the following graph. The resulting curve will illustrate how, under these assumptions, the PV of a particular dividend payment will decline depending on how far from today the dividend is expected to be received. (Note: Round the PV of dividends to the nearest tenth place on the graph.) Tool tip: Click on the points on the graph to see their coordinates. What is the value of the dividend expected to be paid in 50 years? And how much does that dividend contribute to the current stock price? Expected Dividend in Year 50(D50)= Contribution to the Current Stock Price =
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