Author Question: A stock is expected to pay a year-end dividend of $3.00; that is, D1= $3.00. The dividend is ... (Read 74 times)

jojoperlo_ · **on:** Aug 7, 2023

Question 1

A stock is expected to pay a dividend of $1.30 at the end of the year. The required rate of return is r_s= 16.2%, and the expected constant growth rate is g = 9.1%. What is its current price?

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$18.31

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$18.60

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$18.82

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$19.05

Question 2

A stock is expected to pay a year-end dividend of $3.00; that is, D₁= $3.00. The dividend is expected to decline at a rate of 4% a year forever (g = –4%). If the company’s expected and required rate of return is 16%, which of the following statements is correct?

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The company’s current stock price is $25.

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The company’s dividend yield 5 years from now is expected to be 12%.

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The company’s stock price next year is expected to be $14.40.

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The constant growth model cannot be used because the growth rate is negative.

xinyiff · **Reply #1 on:** Aug 7, 2023

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