Marmara MIS Company forecasts to pay dividends 2 TL, 2,5 TL, 3 TL, 3.5 TL, and 4 TL over the next five years, respectively. At the end of three years, you

Marmara MIS Company forecasts to pay dividends 2 TL, 2,5 TL, 3 TL, 3.5 TL, and 4 TL over the next five years, respectively. At the end of three years, you anticipate selling your stock at a market price of 100 TL. What is the price of the stock given a 12% expected return?

Solutions

Expert Solution

Next year dividend (D1= 2 TL

Year 2 dividend (D2) = 2.5 TL

Year 3 dividend (D3) = 3 TL

Sales value at end of year 3 (P3) = 100 TL

Required return on stock (ke) = 12%

Current value of stock is present value of dividends received and value of stock received at year at which sale of stock is made.

Price of stock formula = (D1/(1+ke)^1) +(D2/(1+ke)^2)+((D3+P3)/(1+ke)^3)

= (2/(1+12%)^1)+(2.5/(1+12%)^2)+((3+100)/(1+12%)^3)

= 77.0920645

So price of stock is 77.09 TL.

Junaid answered 1 year ago

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