The following graph shows the value of a stock's dividends over time. The stock's current...
90.2K
Verified Solution
Link Copied!
Question
Accounting
The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today ( Do0 ) and the discounted value of the dividends expected to be paid 10,20 , and 50 years from now (D10,D20,D50). Assume that the stock's required return (rs) is 10.40%. Note: Carry and round the calculations to four decimal places. Using the orange curve (square symbols), plot the present value of each of the expected future dividends for years 10,20 , and 50 . The resulting curve will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates
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!
The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 per share, and dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends. Calculate the present value (PV) of the dividend paid today ( Do0 ) and the discounted value of the dividends expected to be paid 10,20 , and 50 years from now (D10,D20,D50). Assume that the stock's required return (rs) is 10.40%. Note: Carry and round the calculations to four decimal places. Using the orange curve (square symbols), plot the present value of each of the expected future dividends for years 10,20 , and 50 . The resulting curve will illustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received. Note: Round each of the discounted values of the dividends to the nearest tenth decimal place before plotting it on the graph. You can mouse over the points in the graph to see their coordinates 