Question

LO1 1. w LO1 2. Stock Values Fowler, Inc., just paid a dividend of $2.55 per share on its stock. The dividends are expected to grow at a constant rate of 3.9 percent per year, indefinitely. If investors require a return of 10.4 percent on this stock, what is the current price? What will the price be in 3 years? In 15 years? Stock Values The next dividend payment by Hoffman, Inc., will be $2.65 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever. If the Page 231 stock currently sells for $43.15 per share, what is the required return? Stock Values For the company in the previous problem, what is the dividend yield? What is the expected capital gains yield? LO1 3.
only question number 3 on the first screenshot.

Answer 1

Sol- Lo1 1. Dividend constant Required Calculate just paid De $2.55 growth rate 9 - 3.9% rate of return hea 10-4% Current Price in P.. Re-g 22:55 (1.039) 0.104 - 0.039 2.64945 0.065 $ 40.76 Price after 3 years - Politge 240.76 (1.039) - $ 45.717. a lo (149) is 240.76 C1.039) 2 $ 72-35 Price after 15 years

Lol 2. Next dividend ie D 1 2.65 for share Constant growth rate 4.5% forever Current Market Price p. 143. 15 per share Calculate Reqruired return to Re. As per Constant growth Discount Model - Dividend - PO 2.65 + 0.045 43.15 0.1064 10.64 . : Required Return - 10.64%.

Lol 3 - Dividend yield - Dividend x 100 Price > DX100 Po z 2.65 x 100 43-15 2. 6-14 % Expected Capital Gains yield = f, po x 100 where, P. Po 2 Price after one Current market year price growth rate P = Current Market Price & - 43.15 % 045 7 $45.09 Po $43.15 100 . 45.09 - 43.15 x 43-15 = 4.50%