Collapse Total views: 6 (Your views: 1) A. ABC Corp. just paid a dividend of $1.
ID: 2773384 • Letter: C
Question
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Total views: 6 (Your views: 1)
A. ABC Corp. just paid a dividend of $1.95 and the dividends are expected to indefinitely grow at a constant rate of 4.1% p.a. If investors require a return of 10.2% p.a. on this stock, what is the current value? Value in there years? In 15 years?
B. XYZ Corp's next dividend will be $2.30 per share, and the constant dividend growth rate is 4.5% forever. If the current stock price is $39.85, what is the rate of return that invetors require? What is the dividend yield? Expected capital gains yield?
Explanation / Answer
Current share price:
= $1.95×(1+4.1%)÷(10.2%-4.1%)
= $33.28
Share price in 3 years:
= $1.95×(1+4.1%)^4÷(10.2%-4.1%)
= $37.54
Share price in 15 years:
= $1.95×(1+4.1%)^16÷(10.2%-4.1%)
= $60.8