Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to

image text in transcribed
The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (pV) of all of the dividends that a stock is supposed to pay in the future, but many peaple find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend pald today (D,)and the discounted value of the dividends expected to be paid 10 , 20 , and 50 years from now (D10,D20,D50). Assume that the stock's required return (r3) is 10.40%. Note: Carry and round the calculations to four decimal places. Using the orange curve (sayare symbols), plot the present value of each of the expected future dividends for years 10 , 20 , and 50 . The resulting curve will illustrath how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be recelved. Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

McMillan On Options

Authors: Lawrence G. McMillan

2nd Edition

0471678759, 978-0471678755

More Books

Students also viewed these Finance questions