a.Expected Dividend = D0(1+g)^number of years | |
D1 | 1.54 |
D2 | 1.75 |
D3 | 2.00 |
D4 | 2.28 |
D5 | 2.60 |
Value of Stock today = 1.54/(1.11)+1.75/(1.11)^2 + 2/(1.11)^3 + 2.28/(1.11)^4 + 2.60/(1.11)^5 + 2.60(1.08)/(1.11)^5(11%-8%) | |
=$62.86 | |
c.Dividend yield = Expected Dividend/Current Price | |
=1.54/62.86 | |
2.45% | |
Capital Gains yield = 11%-2.45% | |
8.55% | |
Total return = 11% | |
Price at the end of 5 years = 55.55 | |
Dividend yield = 5.05% | |
Capital gains yield = 5.95% | |
Total Return = 11% |
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