Question

P7-9 (similar to) * Question Help Fey Fashions expects the following dividend pattern over the next seven years: E. The company will then have a constant dividend of $3.00 forever. What is the stock's price today if an investor wants to earn a. 17%? b. 20%? a. What is the stock's price today if an investor wants to earn 17%? $ (Round to the nearest cent.) i Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 $1.50 Year 2 $1.65 Year 3 $1.82 Year 4 $2.00 Year 5 $2.20 Year 6 $2.42 Year 7 $2.66 Print Done

Answer 1

Value of Stock is given by : - When Required Rate is 17%

[ D1 , Ꭰ2 , D3 , Ꭰ4 , Ꭰ5 , D6 , Ꭰ7 . (1+ r) * (1+ r)2 * {1+ r) * (1+ r)4 * {1+ r)5 (1+ r) (1+r)Ꭲ " Ds . [ (1+r 7

165 1.65 1.82 1.5 2 2.20 = (1 +0.17)1 + (1 +0.17)2 + (1+0.17)3 + (1 +0.17)* + (1 + 0.17)5 2.66 (1+0.17)6 *(1 +0.17)7*(1 +0.17)7 2.42 3 0.17

= $ 13.40

Value of Stock is given by : - When Required Rate is 20%

[ D1 , Ꭰ2 , D3 , Ꭰ4 , Ꭰ5 , D6 , Ꭰ7 . (1+ r) * (1+ r)2 * {1+ r) * (1+ r)4 * {1+ r)5 (1+ r) (1+r)Ꭲ " Ds . [ (1+r 7

1.5 1.65 2 220 2.42 “1+0.2)*(1+0.2)*(1+0.2)*(1+0.2)*(1+0.2) *(1+0.2) 2.66 (1+0.257 (1+0.257

= $ 11.04

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