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alike bond pricing. Excel does not have buit in functions for stock pricing, so we need to create our own equations. We will begin with corstant growth in dividends. Suppose we have a tock with the following: With this growth rate, the dividend neat year will be: Dovidend nest year: 3252 50, the stock price today with the constant dividend growth model is: Stock peice today: 5. 31.50 Suppose a stock will pay the following dividends and has the following required return: After the third year, the dividends will grow at: 5.01 What is the price of the stock? First, we need to find the price of the stock when it begins a constant growth rate, which is in Year 3 . The price of the stockin Year 3 will be- Price in Year 3: ? The price todwy is the present value of the future dividends, plus the present value of the foture price, toc Price todar ? Two-5tage Growth With two-stage dividend growthy it is a matter of inputting the corect equations into Excel. Because the equation is so involved, we will calculate the stock price at time t, then wae this stock grice in the second part of the equation. Example 8.5: Two-5tage Growth The Highfield Company is going through a period of fast erowth. You want to know the carent value of the stock price and have gathered the following information: uppose we have a stock for which the dividend grows in three (or even more) stages. We can set up a more generai model in Extel to handle additional growth ra:e changes. it is mportant to remember that the peice of a share of stock is nothing more thas the present value of the future cividends. Stippose we have a stock with the fallowing: We have the present value of the first 15 dividends. Now, we need to calculate the present value of the future stock price. The price of the stock in Year 15 will be: Stock price in year 15 : ? And the present value of this future stock price is: Present value of future stock price: The current stock price is the present value of the known dividends, plus the present value of the future stock price, or

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