Question

Stock A will pay a dividend of $2, which is expected to grow at 5% indefinitely....

Stock A will pay a dividend of $2, which is expected to grow at 5% indefinitely. r = 10%.

(i)                 What is the price if interest rate goes up by 1%?

(ii)              What is the price if interest rate goes down by 1%?

(iii)            What is the price if growth rate goes up by 1%?

(iv)             What is the price if growth rate goes down by 1%?

?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
P0 = Price of Share
D1 = Current Dividend
Ke = Cost of Equity
g = growth rate
P0 = D1 / (Ke - g)
P0 = 2/(10%-5%)
P0 =                 40.00
1) P0 = D1 / (Ke - g)
P0 = 2/(11%-5%)
P0 = 33.33333333
2) P0 = D1 / (Ke - g)
P0 = 2/(9%-5%)
P0 =                 50.00
3) P0 = D1 / (Ke - g)
P0 = 2/(10%-6%)
P0 =                 50.00
4) P0 = D1 / (Ke - g)
P0 = 2/(10%-4%)
P0 =                 33.33
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A stock does not currently pay a dividend. It is expected to pay a dividend of...
A stock does not currently pay a dividend. It is expected to pay a dividend of $2.00 five years from today. This dividend is then expected to grow at a rate of 8% for the following 5 years. It will then level off and grow at a rate of 5% indefinitely. For the next 5 years, R = 10%. R = 8% for the following 4 years and then R = 6% indefinitely. What is the expected stock price today?
11. a) The Farrow plc. corporation’s dividends per share are expected to grow indefinitely by 5%...
11. a) The Farrow plc. corporation’s dividends per share are expected to grow indefinitely by 5% per year. i)If this year’s year-end dividend is £8 and the market capitalization rate is 10% per year, what must the current stock price be according to the Dividend Discount Model (DDM)? ii) If the expected earnings per share are £12, what is the implied value of the ROE on future investment opportunities? iii) How much is the market paying per share for growth...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow 3% per year, what will the price be if the required return is 9%? 2) A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is 11%, and the expected growth rate is 5%. What is the current stock price? 3) A stock just paid a dividend of $1. The required rate of...
Gen Corp. is expected to pay a dividend of $3.10 per year indefinitely. The appropriate rate...
Gen Corp. is expected to pay a dividend of $3.10 per year indefinitely. The appropriate rate of return on this stock is 10 percent per year, and the stock consistently goes ex-dividend 30 days before dividend payment date. What will be the expected minimum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)    What will be the expected maximum price in...
JEN Corp. is expected to pay a dividend of $3.25 per year indefinitely. If the appropriate...
JEN Corp. is expected to pay a dividend of $3.25 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?
Steady As She Goes, inc. will pay a year-end dividend of $2 per share investors expect...
Steady As She Goes, inc. will pay a year-end dividend of $2 per share investors expect that dividend to grow at a rate of 5% indefinitely. a. if the stock currently sells for $40 per share,what is the rate of return on the stock? b. if the expected rate of return on the stock is 15.5% what is the stock price?
2. A stock is currently selling for $50, pays a dividend of $2.00. Dividends are expected...
2. A stock is currently selling for $50, pays a dividend of $2.00. Dividends are expected to grow at a constant rate of 3% a year. Investors require an 8% rate of return. a. Calculate the intrinsic value (estimated price) for this stock. b. If an analyst uses a 10% rule i. At what price range would this stock be considered to be overvalued? ii. At what price range would this stock be considered to be undervalued? iii. At what...
Gerdin Inc. just paid out its annual dividend of $2/share. The dividend is expected to grow...
Gerdin Inc. just paid out its annual dividend of $2/share. The dividend is expected to grow at 50% a year for the next 2 years. Afterwards, the annual growth rate will be settled at 5% indefinitely. The required rate of return of the stock is 15%. Find out the expected stock price at the end of year 2. $45 $47.25 $41.74 $43.74 $50
A stock currently pays a $2 dividend. This dividend is expected to grow at 4.5% growth...
A stock currently pays a $2 dividend. This dividend is expected to grow at 4.5% growth for the foreseeable future. The current price is $28. What is the required rate of return on this stock?
Gen Corp. is expected to pay a dividend of $2.60 per year indefinitely. The appropriate rate...
Gen Corp. is expected to pay a dividend of $2.60 per year indefinitely. The appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 40 days before dividend payment date.    What will be the expected minimum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)      Minimum stock price $       What will...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT