Question

You expect a share of stock to pay dividends of $1.70, $1.95, and $2.20 in each of the next 3 years. You believe the stock will sell for $29.00 at the end of the third year.

a. What is the std, ak price if the discount rate for the stock is 20%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Stock price $ 20.83
b. What is the dividend yield for year 1? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Dividend yield %
c. What will be the dividend yield at the start of year 2? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Dividend yield %

Answer 1

A) 20.82

B) Dividend Yield = 8.16%

C) Second Year values:

market price: 23.30 per share

dividend yield: 8.37%

Step-by-step explanation:

`\left[\begin{array}{ccc}#&Dividends&Discounted\\&1&\\1&1.7&1.42\\2&1.95&1.35\\3&2.2&1.27\\3&29&16.78\\\\&TOTAL&20.82\\\end{array}\right]`

At the third year we have two return the 2.2 dividends and the 29 dollars from the sale.

Dividends yield first year:

1.7 / 20.82 = 0,08165

Second Year:

Market price:

`\left[\begin{array}{ccc}#&Dividends&Discounted\\1&1.95&1.63\\2&2.2&1.53\\2&29&20.14\\&TOTAL&23.3\\\end{array}\right]`

Dividend Yield:

1.95 / 23.3 = 0,08369