Question

If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected...

If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected to be $4.38 in one year, $6.33 in two years, $0 in three years, and $2.54 in four years; and 3) after the dividend is paid in four years, the dividend is expected to begin growing by 4.5 percent a year forever, then what is the current price of one share of the stock?

Homework Answers

Answer #1

The current value of the stock is computed as shown below:

= Dividend in year 1 / (1 + required rate of return)1 + Dividend in year 2 / (1 + required rate of return)2 + Dividend in year 3 / (1 + required rate of return)3 + Dividend in year 4/ (1 + required rate of return)4 + 1 / (1 + required rate of return)4[ ( Dividend in year 4 (1 + growth rate) / ( required rate of return - growth rate) ]

= $ 4.38 / 1.095 + $ 6.33 / 1.0952 + $ 0 / 1.0953 + $ 2.54 / 1.09544 + 1 / 1.09544 x [ ($ 2.54 x 1.045) / (0.095 - 0.045) ]

= $ 4.38 / 1.095 + $ 6.33 / 1.0952 + $ 0 / 1.0953 + $ 2.54 / 1.09544 + $ 53.086 / 1.09544

= $ 47.97

Feel free to ask in case of any query relating to this question

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected...
If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected to be $4.38 in one year, $4.62 in two years, $0 in three years, and $2.54 in four years; and 3) after the dividend is paid in four years, the dividend is expected to begin growing by 4.5 percent a year forever, then what is the current price of one share of the stock?
If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected...
If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected to be $4.38 in one year, $4.62 in two years, $0 in three years, and $3.81 in four years; and 3) after the dividend is paid in four years, the dividend is expected to begin growing by 4.5 percent a year forever, then what is the current price of one share of the stock?    a.   An amount less than $64.40    b.   An...
The next three annual dividends paid by XYZ stock are expected to be $7.43 in one...
The next three annual dividends paid by XYZ stock are expected to be $7.43 in one year, $2.79 in two years, and $3.05 in three years. The price of the stock is expected to be $45.78 in two years. The expected annual return for the stock is 15.20 percent. What is the current price of one share of XYZ stock?
XYZ company is about to pay a dividend of $6.59 per share. The dividend is expected...
XYZ company is about to pay a dividend of $6.59 per share. The dividend is expected to grow at a rate of 16 percent annually. If the current cum-dividend stock price of XYZ is $89.01, what is the required rate of return?
The expected rate of return on the common stock of Northwest Corporation is 14 percent. The...
The expected rate of return on the common stock of Northwest Corporation is 14 percent. The stock’s dividend is expected to grow at a constant rate of 8 percent a year. The stock currently sells for $50 a share. Which of the following statements is most correct? Select one: a. The stock’s dividend yield is 8 percent. b. The stock’s dividend yield is 7 percent. c. The current dividend per share is $4.00. d. The stock price is expected to...
The dividends of FIN220 Co. are expected to grow at 15 percent in one year, 20...
The dividends of FIN220 Co. are expected to grow at 15 percent in one year, 20 percent in two years, after which the constant growth rate of 6 percent is expected forever. If the company has just paid the dividend of 3.10 Baht and the required return on the stock is 12 percent, what is the current share price? 64.62 69.06 71.08 66.84
Peratti Industries recently paid a $2.50 dividend per share. The dividend of the company is expected...
Peratti Industries recently paid a $2.50 dividend per share. The dividend of the company is expected to grow by 30 percent next year, 25 percent the following year, and 20 percent the year after before growing at constant rate of 6 percent growth that continue forever. Peratti Industries’ beta is 0.7619, the risk-free rate of interest is 1.6 percent, and the rate of return on market is 10 percent. what is the current stock price of Peratti Industries? What was...
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected...
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected to grow at 10 percent per year for four years and then grow at 6 percent per year forever. How much should you be willing to pay for the APCE stock? Assume 12% required return. 20.24 27.29 16.62 25.83
1. XYZ Inc. has paid annual dividends of $.48, $0.60, and $0.62 a share over the...
1. XYZ Inc. has paid annual dividends of $.48, $0.60, and $0.62 a share over the past three years, respectively. The company plans to maintain a constant dividend in the future. If the required rate of return is 14% for such stock with no growth potential, how much is the price per share you are willing to pay? Answer: _____ ( round to 2 decimal places) 2. ABC pays a constant dividend of $0.75 a share. The company announced today...
A stock is expected to pay a dividend of $2.3 one year from now, and the...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT