Question

just paid its annual dividend of $1.15 per share. The required return is 12.3 percent and the dividend growth rate is 0.75 percent. What is the expected value of this stock five years from now

Answer 1

Answer:

P5 = 10.41

Explanation:

To calculate the stock value with dividends for the fifth year the following formula would be used:

$P5 = \frac{Div_{0} * (1 + g)^{6} }{(r-g)}$

• Where:

1. $Div_{0} =$ The first Dividend Paid.
2. G = Growth Rate.
3. R = Required Return.

• Given Data:

$Div_{0} =$ $1.15

Growth Rate = 12.3%

R = 0.75%

P5 = ?

• Substituting the values in the formula

$P5 = \frac{1.15 * (1 + .0075)^{6} }{(12.3-.0075)} = 10.41$