D E F H 1 ] A16 x fx The constant dividend growth equation is...
60.1K
Verified Solution
Link Copied!
Question
Finance
D E F H 1 ] A16 x fx The constant dividend growth equation is the present value of a growing perpetuity, but we should caution that the equation is very sensitive to the growth rate estimate. Using the same information from above, we can G K M N 52 53 54 55 Example 8.2 Nonconstant Growth 56 57 Suppose a stock has a current dividend af $3. In the first 4 years, the stock will grow at 9% per year. The stock will pay the following dividends and has the following required return: 58 59 Year 1 dividenc 50 Year 2 dividend 61 Year 3 cividend: 62 Year 4 cividend: 63 Required resum: 12.0% 64 65 After the fourth year, the dividends will grow at: , 6.0% 66 67 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 4. The price of the stack in Year 4 will be: 6R 69 Price in Year 4: 70 71 The price today is the present value of the future dividends, plus the present value of the future price, so: 72 73 Price today 74 75 76 7R 79 30 81 82 84 85 86 87 BR
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
