Question

Kwame owns one share of stock of Fairfax Paint and one share of stock of Litchfield Design. The total value of his holdings is 174 dollars. Both stocks pay annual dividends that are expected to continue forever. The expected return on Fairfax Paint stock is 17.72 percent and its annual dividend is expected to remain at 11.52 dollars forever. The expected return on Litchfield Design stock is 17.93 percent. The next dividend paid by Litchfield Design is expected to be 6.6 dollars and all subsequent dividends are expected to grow at a constant rate. What growth rate is expected for Litchfield Design dividends? The next dividend for both firms’ stocks will be paid in one year. Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer 1

iifax poin culaxS dend CF urever growtt moclel - (b) Expec tnd Return. 1a.나. 0.1 .93 0.1393 e) dividind_amount 411.52 G.G Cashflows out rre on Ci) wn i) ton-(i) O.1772 to hn at Ttal val o holdings t ha itchhelo 108. 99 94-6Sol 6S.ol ton-ti) 0-1793-9

10 to8.99 D1293-9G 19 54 -108.99 G6tG.G 2.A q 12:44 (5.S9 by 11.19