Question
The stock price can be modeled as the present value of all future dividends. The challenge in using this approach is (1) deciding on the
The stock price can be modeled as the present value of all future dividends. The challenge in using this approach is (1) deciding on the right discount rate for the dividends, and (2) guessing what the future dividends will be. Assume you have already decided that the discount rate is 10% and that the dividends will have no growth across time and hence be $5 each year forever. The next dividend is 1 year from today. Using this information, what percent of the share price is attributable to the first 3 dividends? Choose the answer closest to the correct number.
25%
5%
34%
40%
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