Question

Problem 12 Intro A stock just paid an annual dividend of $1.1. The dividend is expected to grow by 10% per year for the next 4 years. The growth rate of dividends will then fall steadily by 1.25% per year, from 10% in year 4 to 5% in year 8 and stay at that level forever. The required rate of return is 12%. 18 Attempt 6/10 for 10 pts. Part 1 What is the expected dividend in 8 years? 2+ decimals Submit Part 2 18 Attempt 1/10 for 10 pts. What is the expected stock price in 8 years? 1+ decimals Submit Part 3 18 Attempt 1/10 for 10 pts. What should be the current stock price? 1+ decimals Submit

Answer 1

1.
=1.1*1.1^4*1.0875*1.075*1.0625*1.05
=2.100484076

2.
=1.1*1.1^4*1.0875*1.075*1.0625*1.05*1.05/(12%-5%)
=31.50726114

3.
=1.1*(1.1/1.12)+1.1*(1.1/1.12)^2+1.1*(1.1/1.12)^3+1.1*(1.1/1.12)^4+1.1*(1.1/1.12)^4*(1.0875/1.12)+1.1*(1.1/1.12)^4*(1.0875/1.12)*(1.075/1.12)+1.1*(1.1/1.12)^4*(1.0875/1.12)*(1.075/1.12)*(1.0625/1.12)+1.1*(1.1/1.12)^4*(1.0875/1.12)*(1.075/1.12)*(1.0625/1.12)*1.05/(12%-5%)
=20.63324609