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You want to invest in a stock that will pay $2, $2.5, and $2.75 in dividends in the next 3 years. You expect the stock
You want to invest in a stock that will pay $2, $2.5, and $2.75 in dividends in the next 3 years. You expect the stock to pay a $2 dividend in year 4, and then expect it to grow annually by 2%. Your required rate of return is 5%. Given that the stock is currently trading at $45, should you invest in this stock? No, as the NPV of the transaction to you is -$19.14 No, as the stock price is higher than its intrinsic value of $43.57 No, as the dividend growth slows down over time Yes, as the stock price is lower than its intrinsic value of $66.67 Yes, as the stock price is lower than its intrinsic value of $64.14
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