Finance Assignment Help With Stock Examples

8.3 Stock Examples

1 A stock's last dividend was $5 per share and dividends are expected to grow by 6% per annum indefinitely. If the investors’ required rate of return is 12%. What is the value of the stock?

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The value of the stock is given by:

Value= D1/(k-g)

Value = 5(1+.06)/(.12-.06)

Value = $88.33

2 An analyst forecasts a company will pay dividends of $2 in the first year, $3 in the second year and $3.50 in the third year. After the third year dividends are forecast to grow at 4% per annum. If an investor’s required rate of return is 12%. Find the value of the stock.


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