If investors require a 20% return on CO stock, what will the price be in 5 years?

CO Corp just paid a dividend (today) of $1.00 per share on its stock. The dividends are expected to grow at a constant 10% per year indefinitely. If investors require a 20% return on CO stock, what will the price be in 5 years? (5 years from today)

Please put your answer on the blank line on the answer sheet. Please record your answer in dollars and cents (like I did for the dividend of $1.00)

Solutions

Expert Solution

Dividend (today)	$1.00
Dividend Growth Rate	10%
Return on CO stock	20%
Year	5


Dividend (after 5 years)	1.61051

Price =	Dividend *(1+growth rate)/(return - growth)

	16.1051

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

The stock price of Alps Co. is $67. Investors require a return of 10.5 percent on...

The stock price of Alps Co. is $67. Investors require a return of 10.5 percent on similar stocks. If the company plans to pay a dividend of $4.25 next year, what growth rate is expected for the company’s stock price? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Investors require a 17% rate of return on Levine Company's stock (i.e., rs = 17%). What...

Investors require a 17% rate of return on Levine Company's stock (i.e., rs = 17%). What is its value if the previous dividend was D0 = $3.00 and investors expect dividends to grow at a constant annual rate of (1) -7%, (2) 0%, (3) 3%, or (4) 12%? Do not round intermediate calculations. Round your answers to two decimal places. (1) $ (2) $ (3) $ (4) $ Using data from part a, what would the Gordon (constant growth) model...

Investors require a 7% rate of return on Mather Company's stock (i.e., rs = 7%). What...

Investors require a 7% rate of return on Mather Company's stock (i.e., rs = 7%). What is its value if the previous dividend was D0 = $2.00 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 3%, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ Using data from part a, what would the Gordon (constant growth) model...

Investors require a 7% rate of return on Mather Company's stock (i.e., rs = 7%). What...

Investors require a 7% rate of return on Mather Company's stock (i.e., rs = 7%). What is its value if the previous dividend was D0 = $1.75 and investors expect dividends to grow at a constant annual rate of (1) -3%, (2) 0%, (3) 3%, or (4) 5%? Do not round intermediate calculations. Round your answers to the nearest cent. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return...

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What...

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What is its value if the previous dividend was D0 = $2.25 and investors expect dividends to grow at a constant annual rate of (1) -3%, (2) 0%, (3) 3%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $

Investors require a 17% rate of return on Levine Company's stock (i.e., rs = 17%). What...

Investors require a 17% rate of return on Levine Company's stock (i.e., rs = 17%). What is its value if the previous dividend was D0 = $3.00 and investors expect dividends to grow at a constant annual rate of (1) -2%, (2) 0%, (3) 4%, or (4) 12%? Do not round intermediate calculations. Round your answers to two decimal places. (1) $ (2) $ (3) $ (4) $

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What...

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What is its value if the previous dividend was D0 = $3.50 and investors expect dividends to grow at a constant annual rate of (1) -2%, (2) 0%, (3) 2%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return...

Investors require an 8% rate of return on Mather Company's stock (i.e., rs = 8%). What...

Investors require an 8% rate of return on Mather Company's stock (i.e., rs = 8%). What is its value if the previous dividend was D0 = $1.75 and investors expect dividends to grow at a constant annual rate of (1) -4%, (2) 0%, (3) 2%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ Using data from part a, what would the Gordon (constant growth) model...

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What...

Investors require an 8% rate of return on Levine Company's stock (i.e., rs = 8%). What is its value if the previous dividend was D0 = $1.50 and investors expect dividends to grow at a constant annual rate of (1) -4%, (2) 0%, (3) 2%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ Using data from part a, what would the Gordon (constant growth) model...

Investors require a 15% rate of return on Levine company’s stock (that is, ????= 15%). (1)...

Investors require a 15% rate of return on Levine company’s stock (that is, ????= 15%). (1) What is its value if the previous dividend (??0 ) was $2, and investors expect dividends to grow at a constant rate of (ⅰ) -5%, (ⅱ) 0%, or (ⅲ) 5%? (2) Using data from part (1) (??0=$2), what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate was 20%? Is this a...

Subjects