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The following graph shows the value of a stock's dividends over time. The stock's i current dividend is $1.00, end dividends are expected to grow
The following graph shows the value of a stock's dividends over time. The stock's i current dividend is $1.00, end dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of stock should equal the sum of the present value (PV) of all the dividends that a stock it supposed to pay in the future, but many people find it difficult to imagine adding up en infinite number of dividends. Calculate the PV of the dividend paid today (D_o) end the PV of the dividends expected to be paid 10 and 20 years from now (D_10 and 0D_20). Assume that the stock's required return (r_s) it 10.40%. Using the orange curve (square symbols), plot the present value of each of the expected future dividends for years 10, 20, and 50. The resulting curve will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received
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