Homework Answers
As per Dividend Discount Model,
P3= D4/(R-G) Where P3= Stock Price in year 3, D4= Dividend for Year 4, R= Interest rate and G= Constant growth rate of dividend.
Given, Current Dividend= $6.5, Growth rate= 1% and Interest rate=5%
Therefore, D4= $6.5*(1+1%)^4 = $6.763926
P3= $6.763926/(5%-1%) = $ 169.098152
Dividend Yield in year 4= (D4/P3)*100 = ($6.763926/$ 169.098152)*100 = 4%
Answer is last of the options given.
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