Question

Dani's just paid an annual dividend of $6 per share. What is the dividend expected to be in five years if the growth rate is 4.2%?

$7.07
		$7.37
		$7.14
		$7.44

2.

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

true

false

3.

ABC's current dividend is $5 and has an annual growth rate of 6%. What would be the current price of a share of ABC stock if investors require 20% rate of return?

$19.23

$25

$35.71

$37.86

Answer 1

1)Ans:

Future Dividend = Current dividend ( 1 + r)^5

= 6 (1 + 0.042)^5

= 7.3703

So the correct option is option "B"

2)Ans; The statement is "TRUE". The dividend discount model states that the stock price should be the present value of all the future dividends of the stock.

3)Ans:

Stock Price= Dividend for next period / (Required rate of Return - Growth Rate)

Dividend for next period = Current Dividemnd (1 + Growth rate)

= 5 (1 + 6%)

= 5.3

Stock Price = 5.3/ (0.2 - 0.06)

= 37.8571

So the correct option is the last one.

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