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Posted by: Annie kavitha
Price Quoted by Student: $3.5
Posted On: 2011-05-09 02:02:40
 
Question

A stock expects to pay a year-end dividend of $2.00 a share (i.e., D1 = $2.00; assume that last year's dividend has already been paid). The dividend is expected to fall 5 percent a year, forever (i.e., g = -5%). The company's expected and required rate of return is 15 percent. Which of the following statements is most correct?

 

  a. The company's stock price is $10.   

  b. The company's expected dividend yield 5 years from now will be 20 percent.   

  c. The company's stock price 5 years from now is expected to be $7.74.   

  d. Both answers b and c are correct.

  e. All of the above answers are correct.


Solutions
SOLUTION   a. The company's stock price is
Price $3.5
Attachment 1: A stock expects to pay a year-end dividend of $2.00 a share.doc
Solution Posted By: Annie kavitha    Posted on: 09-05-2011