Question

4. Expected dividends as a basis for stock values Аа А The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 4.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today (D) and the discounted value of the dividends expected to be paid 10 and 20 years from now (D10 and D2o). Assume that the stock's required return (rs) is 5.40%. Note: Carry and round the calculations to four decimal places. Time Period Dividend's Expected Expected Dividend's Future Value Present Value Now End of Year 10 End of Year 20 End of Year 50 Using the blue curve (circle symbols), plot the future value of each of the expected future dividends for years 10, 20, and 50. The resulting curve will illustrate how the FV of a particular dividend payment will increase depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates.

Answer 1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

@vL . * 09:58 ENG 25-03-202026 AV57 AT AU AV AW AX AY AZ BA BB BC BD BE BE BG current dividend 4.50% 5.40% Time period GROWTH RATE Dividend's expected Future value DISCOUNT RATE = expected dividend's present value now End of year 10 End of year 20 End of year 50 1*(1 + 0.045) 10 = 1*(1 + 0.045)^20 = 1*(1 + 0.045)^50 = 1.5530 2.4117 9.0326 1.4106/(1+0.054) 10 = 1.9898/(1+0.054) 20 5.5849/(1+0.054)^50 = 0.9178 0.8424 0.6513 10.0000 TES INTERVAL, ... ... Sheet4 PV FV DIVIDEND EMV Sheet2 MEAN STDV assignment DEAR prob sd COV TIME SERIES corr REGRESSION range CAMERA

© v 1x 10-01 ENG 25-03-2020 26 AX76 .: X AV fx AW AX AYAZ BA BB BC BD BE BE BG BH BI _ 10.0000 9.0000 9.0326 year 8.0000 future dividend present value of dividend 1.5530 0.9178 2.4117 0.8424 9.0326 0.6513 7.0000 future dividend DIVIDEND 6.0000 5.0000 4.0000 3.0000 present value of dividend 2.0000 1.0000 1.5530 0.9178 10 20 0.6513 0.0000 0 0.8424 30 YEARS 40 50 60 ... Sheet4 PV FV DIVIDEND EMV Sheet2 MEAN STDV assignment DEAR prob sd COV TIME SERIES corr REGRESSION range CAMERA INTERVAL, ... :