45. NU YU announced today that it will begin paying annual dividends. The first
ID: 2771784 • Letter: 4
Question
45.
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.51 a share. The following dividends will be $0.56, $0.71, and $1.01 a share annually for the following three years, respectively. After that, dividends are projected to increase by 3.5 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 9 percent?
$19.01
$15.67
$19.67
$3.92
$19.52
46.
The next dividend payment by Halestorm, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $39 per share, what is the required return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
47.
The next dividend payment by Halestorm, Inc., will be $1.72 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $33 per share.
What is the dividend yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $0.51 a share. The following dividends will be $0.56, $0.71, and $1.01 a share annually for the following three years, respectively. After that, dividends are projected to increase by 3.5 percent per year. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 9 percent?
Explanation / Answer
45.
Value after year 4=(D4*Growth rate)/(Required return-Growth rate)
=(1.01*1.035)/(0.09-0.035)=$19.00636364
Hence current price=Future dividends*Present value of discounting factor(9%,time period)
=0.51/1.09+0.56/1.09^2+0.71/1.09^3+1.01/1.09^4+19.00636364/1.09^4
=$15.67(Approx).
46.
Required return=(D1/Current price)+Growth rate
=(1.96/39)+0.04
=9.03%(Approx).
47.
Dividend yield=Dividend/Current price
=(1.72/33)=5.21%(Approx).
Capital gains yield=Growth rate=4%
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