posted by Heidi
1) growth rates
The stock price of the company is $76
investors require a 14% rate of return on similar stocks
If the company plans to pay a dividend of $5.00 next year
the expected growth rate of the company's stock price is ______ percent
2) non constant dividends
A company has just paid a dividend of $13.00 per share.
They will increase the dividend by $6.00 per share for each of the next three years and then never pay another dividend. If you require a 15% return on the company's stock, you will pay $ _________ per share today
First, Finance is not my area.
That said, I would think that if someone expects a 14% rate of return, either in dividends or price per share, then 1.14*76 = 86.64 with no dividends and 86.64-5. = 81.64 with a $5 dividend. The growth rate = 1- 81.64/76 = 7.4%
2) assuming that there is no expected growth in the stock price, and I expect to sell after the 3rd dividend payment. Dividends 1,2, and 3 years from now are 19, 25, and 31. Deflate each of these by 15% per year. X=15/1.15 + 25/(1.15^2) + 31/(1.15)^3 = 55.81