Question

33. A stock is expected to pay annual dividends forever. The first dividend is expected in 1 year and all subsequent annual dividends are expected to grow at a constant rate annually. The dividend expected in 3 years from today is 15.18 dollars and the dividend expected in 12 years from today is expected to be 24.27 dollars. What is the dividend expected to be in 8 years from today

Answer 1

Growth rate of dividend = (Dividend in year 12/Dividend in year 3)^(1/9)

= (24.27/15.18

= 5.35%

Thus dividend in year 8 = Dividend in year 3 * (1 + growth rate)^5

= 15.18 * (1.0535)^5

= $19.70