A company will pay a $6 per share dividend in 1 year. The dividend in 2 years wi

Question

A company will pay a $6 per share dividend in 1 year. The dividend in 2 years will be $4 per share, and it is expected that dividends will grow at 2% per year thereafter. The expected rate of return on the stock is 10%.

What is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What is the expected price of the stock in a year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

a.

What is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b.

What is the expected price of the stock in a year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Answer:a Current Price:

P2=D3/(Ke-g)

=4*1.02/(0.10-0.02)=$51

Answer:b Expected share Price=4*1.02/0.08=$51

Year Dividend Price Total P.V.F (10%) PV 1 6 6 0.909 5.454 2 4 51 55 0.826 45.43 50.884

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.