Question

5) Assume that a company issued as stock that offers $2 dividends today. If dividends are growing at 5% per year, and the expected rate of return is 7%, how much the stock price will be selling today? 5 years from now ?

Answer #1

Div1 = $2 * (1 + 5%) = $2.10

Div6 = Div0 * (1 + g)^{6}

Div6 = $2 * (1 + 5%)^{6}

Div6 = $2.68

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