A stock paid dividend of $2 at the end of the current year. Dividends will grow...

Question

Question

A stock paid dividend of $2 at the end of the current year. Dividends will grow at the rate of 5% indefinitely. The required

Answer 1

Answer #1

Dividend at the end of Currentr Year(D0) = $2

Growth rate of dividend(g) = 5% indefinately

Required rate of Return(Ke) = 12%

Calculating the Price of Stock at the end of 2nd year:-

$P_2 =\frac{D_0(1+g)^3}{(Ke-g)}$

$P_2 =\frac{2*(1+0.05)^3}{(0.12-0.05)}$

P2 = $33.075

So, Stock Price at the end of 2nd year is $33.075

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating

Answer 2

Similar Homework Help Questions

1) A company recently paid out a $4 per share dividend on their stock. Dividends are...

1) A company recently paid out a $4 per share dividend on their stock. Dividends are projected to grow at a constant rate of 5% into the future, and the required return on investment is 8%. After one year, the holding period return to an investor who buys the stock right now will be: A. 5% B. 3% C. 8% D. 13% 2) A company recently paid out a $2 per share dividend on their stock. Dividends are projected to...
paid an annual dividend of $2.10 yesterday. If future dividends are expected to grow at a...

paid an annual dividend of $2.10 yesterday. If future dividends are expected to grow at a rate of 8 percent, and the required rate of return on this stock is 15 percent, the fair price of this stock today is: a. $27.46 b. $33.91 c. $32.40 d. $30.00
3 Canvas A stock paid a dividend of $280. The dividends will grow at a constant...

3 Canvas A stock paid a dividend of $280. The dividends will grow at a constant rate of 3.0%. If the investors require a return rate of 8.8%, what is the current price of the stock? $5.121.58 $9.613.33 $4,97241 $3.277.27 $4,823 24 Question 30 1 pts A company announces to pay a stock dividend of 512 next year. The dividends will grow at a constant rate of 5.0% thereafter. The required rate of return is 6.0%. Find the current price...

The Napa Co. just paid a dividend of $3.15 per share on its stock. The dividends...

The Napa Co. just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require a return of 12 percent on the stock, what is the current price? What will the price be in four years?
The Herjavec Co just paid a dividend of 2.00 per share on its stock. The dividends...

The Herjavec Co just paid a dividend of 2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. The Herjavec Co.just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's...
The Brennan Co. just paid a dividend of $2.50 per share on its stock. The dividends...

The Brennan Co. just paid a dividend of $2.50 per share on its stock. The dividends are expected to grow at a constant rate of 7% per year indefinitely. Brennan Co. investors require a 12% return on their stock. a. What is the current price of a share of Brennan Co. Stock? b. What will be the price of a share in of Brennan Co. Stock in 5 years? c. What will be the price of a share of Brennan...

QWE Corporation just paid a dividend of $2 a share. The dividends are expected to grow...

QWE Corporation just paid a dividend of $2 a share. The dividends are expected to grow at 10% a year for the next 3 years, and the 5% per year thereafter. The required rate of return on QWE stock is 12%. What is the current price of QWE? Question 8 options: Not enough information. $22.68 $35.58 $28.47 $34.26
QWE Corporation just paid a dividend of $2 a share. The dividends are expected to grow...

QWE Corporation just paid a dividend of $2 a share. The dividends are expected to grow at 10% a year for the next 3 years, and the 5% per year thereafter. The required rate of return on QWE stock is 12%. What is the current price of QWE? Question 40 options: Not enough information. $35.58 $28.47 $34.26 $22.68
Magnetic Corporation expects dividends to grow at a rate of 19.70% for the next two years....

Magnetic Corporation expects dividends to grow at a rate of 19.70% for the next two years. After two years dividends are expected to grow at a constant rate of 06.70% indefinitely. Magnetic’s required rate of return is 08.49% and they paid a $1.91 dividend today. Find the value of Magnetic Corporation’s common stock per share by computing: a) Dividend at the end of Year 1: b) Dividend at the end of Year 2: c) Dividend at the...

Magnetic Corporation expects dividends to grow at a rate of 16.00% for the next two years....

Magnetic Corporation expects dividends to grow at a rate of 16.00% for the next two years. After two years dividends are expected to grow at a constant rate of 03.10% indefinitely. Magnetic’s required rate of return is 08.48% and they paid a $2.57 dividend today. Find the value of Magnetic Corporation’s common stock per share by computing: a) Dividend at the end of Year 1: b) Dividend at the end of Year 2: c) Dividend at the...