Question

A common stock is expected to pay a dividend of $114 at the end of
each year for the first 11 years. After that, the 12th12th dividend
is $114(1.02)114(1.02), the 13th13th dividend is
$114(1.02)2114(1.02)2, and so on indefinitely. Calculate the price
P of this stock to yield an annual effective rate of 7%.

P =

Answer #1

Price of Stock = PV(Dividends) + PV(Horizon Value)

From Year 1 to Year 11,

Annual Dividend = $114

Interest Rate = 7%

Calculating Present Value,

Present Value of Annuity = P[(1 - (1 + r)^{-n})/r]

Present Value = 114[(1 - (1.07)^{-11})/0.07]

Present Value = $854.85

After Year 11,

Horizon Value at Year 11= D_{11}(1 + g)/(r - g)

Horizon Value = 114(1.02)/(0.07 - 0.02)

Horizon Value = $2,325,60

Present Value of Horizon Value = 2325.60/(1.07)^{11}

Present Value of Horizon Value = $1,104.88

Stock Value = 854.85 + 1104.88

Stock Price = $1,959.73

3. Grizzlies Inc. expects to pay $3.00 dividend on its common
stock at the end of the year. The dividend is expected to grow 25%
a year for the first two years, after which the dividend is
expected to grow at a constant rate of 5% a year indefinitely. The
stock’s beta is 1.2, the risk-free rate of interest is 6%, and the
rate of return on the market portfolio is 11%. What is the
company’s current stock price?

Consider a stock that is planning to pay a dividend of $3 at the
end of this year. After that, dividends will grow at a fixed rate
of 4.5% per year indefinitely. The required return on the stock is
11%.
a. What is the value of the stock today, in 5 years, and in 8
years?
b. What are dividend yield and capital gains yield yield this
year, in 5 years, and in 8 years?

A stock is expected to pay a dividend next year of $1.7. The
dividend amount is expected to grow at an annual rate of 4.4%
indefinitely. Assuming a required return on the stock of 9.9% in
the future, the dividend yield on the stock is ______%.

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?

(a) What is the value of a stock expected to pay a constant
$3.50 dividend each year forever if the market required rate of
return is 18%?
(b) What is the estimated value of a stock, which intends to pay
the dividend of $2.50 five years from now (at the end of year 5),
expects dividends to grow at 10 percent? The Beta of this stock is
1.5. The yield on a 10-year government bonds is 3% the long-term
return...

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...

Constant Dividend Growth Valuation
Crisp Cookware's common stock is expected to pay a dividend of
$2.25 a share at the end of this year (D1 = $2.25); its
beta is 0.6. The risk-free rate is 6% and the market risk premium
is 6%. The dividend is expected to grow at some constant rate,
gL, and the stock currently sells for $40 a share.
Assuming the market is in equilibrium, what does the market believe
will be the stock's price at...

A stock is expected to pay a dividend of $2.3 one year from now,
and the same amount every year thereafter. The stock's required
return (indefinitely) is expected to be 9.5%. The stock's predicted
price exactly 5 years from now, P5, should be $_______________.
A stock is expected to pay a dividend of $1.2 one year from now,
$1.6 two years from now, and $2.4 three years from now. The growth
rate in dividends after that point is expected to...

The
stock is expected to pay a dividend of $1.25 at the end of the
year. The required rate of return is RS = 11%, and the expected
constant growth rate is G = 5%. What is the Stocks one year from
today?

Crisp Cookware's common stock is expected to pay a dividend of
$1.5 a share at the end of this year (D1 = $1.50); its beta is
1.00; the risk-free rate is 4.3%; and the market risk premium is
5%. The dividend is expected to grow at some constant rate g, and
the stock currently sells for $21 a share. Assuming the market is
in equilibrium, what does the market believe will be the stock's
price at the end of 3...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 13 minutes ago

asked 16 minutes ago

asked 16 minutes ago

asked 24 minutes ago

asked 26 minutes ago

asked 38 minutes ago

asked 40 minutes ago

asked 47 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago