A firm expects to pay dividends at the end of each of the next four years of $2.

Question

A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock? Question 2 options:
A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock? Question 2 options:
A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock? A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay for this stock?

Explanation / Answer

P4=(3.50)(1.08)/(.14-.06)=$63

P0=2/1.14+1.5/(1.14)^2+2.5/(1.14)^3+3.5/(1.14)^4+63/(1.14)^4

=1.754+1.154+1.687+39.73

=$43.97

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