Question

h d the are Dividendis expected r y year after than Che the next nguere dides s e i spor share sustainable rate of 5. 3 this what should t h todas or share co stock has dividends which are expected to grow at 4% forever. A share of Doncos "0 and investors require a return of 8.5%. What is the amount of the last dividend Do

Answer 1

Q3. The share worth is computed as shown below:

Dividend at end of year 1 will be

= $ 1.88 x 1.16

= $ 2.1808

Dividend at end of year 2 will be

= $ 1.88 x 1.16²

= $ 2.529728

Dividend at end of year 3 will be

= $ 2.529728 x 1.055

= $ 2.668863 Approximately

So the price will be:

= $ 2.1808 / 1.088¹ + $ 2.529728 / 1.088² + 1 / 1.088² [ ( $ 2.668863 / ( 0.088 - 0.055 ) ]

= $ 72.46 Approximately

The next question is not completely written, hence cant answer.

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