Singing Fish Fine Foods has a current annual cash dividend policy of $4.00
The price of the stock is set to yield a return of 12 %
What is the price of this stock if the dividend will be paid
a. for 10 years?
b. for 17 years?
c. for 41 years?
d. for 60 years?
e. for 100 years?
f. forever?
King Waterbeds has an annual cash dividend policy that raises the dividend each year by
5%. The most recent dividend, Div 0 was $ 0.40 per share. What is the stock's price if
a. an investor wants a return of 6%?
b. an investor wants a return of 9%?
c. an investor wants a return of 11%?
d. an investor wants a return of 14%?
e. an investor wants a return of 17%?
Answer to Question 1:
Part a:
Dividend = $4.00
Required Return = 12%
Time Period = 10 years
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + … + $4.00/1.12^9 +
$4.00/1.12^10
Price of Stock = $4.00 * (1 - (1/1.12)^10) / 0.12
Price of Stock = $4.00 * 5.650223
Price of Stock = $22.60
Part b:
Dividend = $4.00
Required Return = 12%
Time Period = 17 years
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + … + $4.00/1.12^16 +
$4.00/1.12^17
Price of Stock = $4.00 * (1 - (1/1.12)^17) / 0.12
Price of Stock = $4.00 * 7.119630
Price of Stock = $28.48
Part c:
Dividend = $4.00
Required Return = 12%
Time Period = 41 years
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + … + $4.00/1.12^40 +
$4.00/1.12^41
Price of Stock = $4.00 * (1 - (1/1.12)^41) / 0.12
Price of Stock = $4.00 * 8.253372
Price of Stock = $33.01
Part d:
Dividend = $4.00
Required Return = 12%
Time Period = 60 years
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + … + $4.00/1.12^59 +
$4.00/1.12^60
Price of Stock = $4.00 * (1 - (1/1.12)^60) / 0.12
Price of Stock = $4.00 * 8.324049
Price of Stock = $33.30
Part e:
Dividend = $4.00
Required Return = 12%
Time Period = 100 years
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + … + $4.00/1.12^99 +
$4.00/1.12^100
Price of Stock = $4.00 * (1 - (1/1.12)^100) / 0.12
Price of Stock = $4.00 * 8.333234
Price of Stock = $33.33
Part f:
Dividend = $4.00
Required Return = 12%
Time Period = Forever
Price of Stock = $4.00/1.12 + $4.00/1.12^2 + …
Price of Stock = $4.00 / 0.12
Price of Stock = $33.33
Singing Fish Fine Foods has a current annual cash dividend policy of $4.00 The price of...
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