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A stock is not expected to pay dividends for the next ten years. Eleven years from today, the stock is expected to pay a dividend of $9.82 per share. Dividends will then grow at 4.50 percent per year indefinitely.
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A stock is not expected to pay dividends for the next ten years. Eleven years from today, the stock is expected to pay a dividend of $9.82 per share. Dividends will then grow at 4.50 percent per year indefinitely. The expected return on this stock is 11 percent. What is one share of the stock worth today?

User Hinrik
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1 Answer

2 votes

Answer:

$53.21

Step-by-step explanation:

using the dividend dividend discount model, we can calculate the terminal value at the end of year 10:

the terminal value at the end of year 10 = $9.82 / (11% - 4.5%) = $9.82 / 6.5% = $151.08

the present value (today) = $151.08 / (1 + 11%)¹⁰ = $$151.08 / 2.83942 = $53.21

User Alicjasalamon
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