Question

YourChoice plans to pay dividends of $.5 per share for the next 5 years. After that, it expects to increase dividends by 4% indefinitely. An appropriate required return for the stock is 10%. Using the multistage DDM, the stock should be worth __________ today.

	$9.83
	$7.28
	$8.67
	$6.41

Answer 1

Dividend to be paid for next 5 years(D) = $0.5 per share

Therafter, dividend is expected to grow indefinately(g) = 4%

Required rate of return(ke) = 10%

calculating the Current price of stock using dividend Discount Model(DDM):-

P0 = 0.4545 + 0.4132 + 0.3757 + 0.3415 + 0.3105 + 5.3813

P0 =$7.28

So, the stock should be worth $7.28 today

Option 2

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