The following graph shos the value of a stock\'s dividnds over time. the stock\'

Question

The following graph shos the value of a stock's dividnds over time. the stock's current dividend is $1.00, and dividends are expected to grow at a constant rate of 3.50% per year. The intrinsic value of a stock shoudl equal the sum of the present value of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends.

Calculate teh PV of teh dividend paid today and the PV of the dividends expected to be paid 10 and 20 years from now. Assume that the stock's required return is 10.40%.

carry and round the calculations to four decimal places.

Time period                          Dividend's expected Future Value                        Expected dividend's present value

Now:                                                                                                                                      (?)

End of year 10                                                      (?)                                                              (?)

End of year 20                                                      (?)                                                               (?)

End of year 50                                                       (?)                                                               (?)

Explanation / Answer

Time period Dividends Expected future value PVF Expected dividend present value Now 1 1 1 End of year 10(1*(1+0.035))^10 1.410598761 0.371799898 0.524460475 End of year 20(1*(1+0.035))^20 1.989788863 0.138235164 0.27505879 End of year 50(1*(1+0.035))^50 5.584926856 0.00710471 0.039679283

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