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 transcribedimage text in transcribed

The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D.) and the discounted value of the dividends expected to be paid 10 and 20 years from now (D10 and D20). Assume that the stock's required return (rs) is 8.40%. Note: Carry and round the calculations to four decimal places. Time Period Dividend's Expected Future Value Expected Dividend's Present Value Now End of Year 10 End of Year 20 End of Year 50 Using the purple curve (diamond symbols), plot the present value of each of the expected future dividends for years 10, 20, and 50. The resulting curve will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates. Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates. 4.00 O FV of Dividends Discounted Dividends 3.00 DIVIDENDS ($) 2.00 O 1.00 PV of Dividends 0 0 10 20 30 40 50 60 YEARS

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

Step: 3

blur-text-image

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

Healthcare Finance An Introduction To Accounting And Financial Management

Authors: Louis C. Gapenski

5th Edition

1567934250, 978-1567934250

More Books

Students also viewed these Finance questions

Question

3 / 8t = 5 / 6 t 1 / 4

Answered: 1 week ago

Question

1. Dont say, This is easy, I know you can do it.

Answered: 1 week ago