A Stock will pay dividends at time t = 1 of $1.00. It is expected to grow at 10%

Question

A Stock will pay dividends at time t = 1 of $1.00. It is expected to grow at 10% as far as we can see into the future. If the appropriate discount rate for the risk of this stock is 15%, what should be the value of this stock, at t = 0?

A Stock pays dividends of $1.00 at t = 1. (D1 is provided here, not D0) It is growing at 20% between t =1 and t = 2, after which the growth rate drops to 10%, and will continue at that rate into the future. If the discount rate for this stock is 15%, what should be the value of the stock at t = 0?

Explanation / Answer

1. the value of this stock, at t = 0 = 1/(15%-10%) =$20

2.value of the stock at t = 0 = 1/1.15 +1*1.2/1.15^2 + (1*1.2*1.1/(15%-10%))/1.15^2 =$21.74

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