What is the value of a stock with current dividend paying $1, a growth rate of...

What is the value of a stock with current dividend paying $1, a growth rate of 5% on the dividends, discount rate of 12% that will be held for 5 years and then sold at $18?

Solutions

Expert Solution

D1=(1*1.05)=1.05

D2=(1.05*1.05)=1.1025

D3=(1.1025*1.05)=1.157625

D4=(1.157625*1.05)=1.21550625

D5=(1.21550625*1.05)=1.27628156

Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)

=1.05/1.12+1.1025/1.12^2+1.157625/1.12^3+1.21550625/1.12^4+1.27628156/1.12^5+18/1.12^5

=$14.35(Approx)

jeff jeffy answered 1 year ago

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