Peagram Mine's 1st quarterly dividend is expected to be twoyears from today with an expected...

Peagram Mine's 1st quarterly dividend is expected to be two years from today with an expected amount of $1.50 per share. Each subsequent quarterly dividend is expected to grow by 4 percent. following the quarterly dividend eight years from now, the quarterly dividends are expected to grow by 2 percent each quarter. Given the risk associated with Peagram's stock, the required expected return is 18 percent per year(effective).

What is the price of one share of peagram's stock?

Solutions

Expert Solution

Expected dividend = $ 1.50

Dividend will be growing at a rate of 4% for first 8 years then it will be growing at a rate of 2%.

Interest rate = 18% per year = 4.5% per quarter

The present value can be written as

On solving the above equation we get

=> P = $ 93.16

The price for the companies stock is $ 93.16.

Rahul Sunny answered 2 years ago

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