Question

Star Light & Power increases its dividend 4.4 percent per year every year. This utility is valued using a discount rate of 11 percent, and the stock currently sells for $51 per share. If you buy a share of stock today and hold on to it for at least 4 years, what do you expect the value of your dividend check to be 4 years from today?

Answer 1

	rate 11%		div growth rate @4.4%	dividend each year
	discount factor (k)	Dividend	gt	Dt
yr1	1.11	51	1.044	47.96756757
yr2	1.232	51	1.090	45.11544193
yr3	1.368	51	1.138	42.43290214
yr4	1.518	51	1.188	39.90986471
Total				175.4257763

Discount rate is 11% i.e, 0.11

Dividend growth rate 4.4% = 0.044

If the stock is held for 4 years, then its price is assumed to be constant, then the formula for calculating dividend is

​V=D₁/(1+k)​​+D₂​​/((1+k)² +D₃/(1+k)³ ​​+⋯+D_n​​​ /(1+k)ⁿ

D1 is the dividend in year 1 , D1 = stock price * growth rate = $51* (1+ 4.4%)

D2 = $51 *(1+ 4.4%)² and so on......

Expected value of the dividend at the fourth year would be $175.426