The current price of a stock is $ 65.88. If dividends are expected to be $ 1 per
ID: 1191493 • Letter: T
Question
The current price of a stock is $ 65.88. If dividends are expected to be $ 1 per share for the next five years, and the required return is 10%, then what should the price of the stock be in 5 years when you plan to sell it? If the dividend and required return remain the same, and the stock price is expected to increase by $ 1 five years from now, does the current stock price also increase by $ 1? Why or why not?
The current price of a stock is $ 65.88. If dividends are expected to be $ 1 per share for the next five years, and the required return is 10%, then what should the price of the stock be in 5 years when you plan to sell it? If the dividend and required return remain the same, and the stock price is expected to increase by $ 1 five years from now, does the current stock price also increase by $ 1? Why or why not?
The current price of a stock is $ 65.88. If dividends are expected to be $ 1 per share for the next five years, and the required return is 10%, then what should the price of the stock be in 5 years when you plan to sell it? If the dividend and required return remain the same, and the stock price is expected to increase by $ 1 five years from now, does the current stock price also increase by $ 1? Why or why not?
Explanation / Answer
for year 1, 65.88 x 1.10% = 72.47 less $1 dividend = 71.47
Year 2, 71.47 x 1.1% = 78.62 less $1 dividend = 77.62
Year 3, 77.62 x 1.1 =85.38 less $1 dividend = 84.38
Year 4, 84.38 x 1.1 = 92.82 less $1 dividend = 91.82
Year 5, 91.82 x 1.1 = 101.00 less $1 dividend = $100.00
So value will be $100 at the end of five years.
2) yes the current stock price will increase by $1, as dividend will cover the required return , so there will not be any change in the price due to dividend and required return.
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