You expect a share of stock to pay dividends of $1.00, $1.25, and $1.50 in each of

Question:

You expect a share of stock to pay dividends of $1.00, $1.25, and $1.50 in each of the next 3 years. You believe the stock will sell for $20 at the end of the third year.

a. What is the stock price if the discount rate for the stock is 10%?

b. What is the dividend yield?

Dividends:

Year 1..........$1.00

Year 2..........$1.25

Year 3..........$1.50

Discount rate........ 10.00%

Stock price after 3 years.. $20.00

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...