video lesson 2

Suppose that D0=$1.00 and the stock's last closing price is $23.78. It is expected that earnings and dividends will grow at a constant rate of g=6.50% per year and that the stock's price will grow at this same rate, Let us assume that the stock is fairly priced, that is, it is in equilibrium and the most appropriate required rate of return is rr=11.00%. The dividend recelved in period 1 is D1=$1.00(1+0.0650)=$1.07 and the estimated intrinsic value in the same period is based on the constant growth model: P1=r2rD2. Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. If it is forecasted that the total return equals 11.00% for the next 5 years, what is the forecasted total return out to infinity? 4.50% 6.50% 11.00% 125000