A stock is expected to pay a dividend of $1.00 at the end of the year...

Question

Question

A stock is expected to pay a dividend of $1.00 at the end of the year (i.e., D1 = $1.00), and it should continue to grow at a

Answer 1

Answer #1

price after 2 years

=> D3 / (required return- constant rate)

here,

D3 = dividend of year 3 => D1*(1+ growth rate)^2

=>1.00*(1.08)^2.

=>1.1664.

required return = 0.12.

constant rate = 0.08

=>$1.1664/(0.12-0.08)

=>$29.16.

Answer 2

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