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
To calculate the expected growth rate of a company's stock price, we can use the Dividend Discount Model (DDM) formula. The DDM formula is based on the principle that the value of a stock is the present value of its expected future dividends.
1) To calculate the expected growth rate:
Step 1: Determine the expected dividend for next year. In this case, the company plans to pay a dividend of $5.00 next year.
Step 2: Determine the required rate of return. In this case, investors require a 14% rate of return on similar stocks.
Step 3: Use the DDM formula to calculate the growth rate. The formula is:
Expected Growth Rate = (Dividend / Stock Price) + Rate of Return
Plugging in the values:
Expected Growth Rate = ($5.00 / $76.00) + 0.14
Expected Growth Rate = 0.0658 + 0.14
Expected Growth Rate = 0.2058 or 20.58% (rounded to the nearest hundredth)
Therefore, the expected growth rate of the company's stock price is 20.58% percent.
2) To calculate the price per share today:
Step 1: Determine the future dividends. In this case, the company plans to increase the dividend by $6.00 per share for each of the next three years. So the future dividends would be $13.00, $19.00 ($13.00 + $6.00), $25.00 ($19.00 + $6.00), and $25.00 for years 1, 2, and 3 respectively.
Step 2: Determine the required rate of return. In this case, you require a 15% return on the company's stock.
Step 3: Use the DDM formula to calculate the price per share today. The formula is:
Price per Share Today = (Dividend Year 1 / (1 + Rate of Return)) +
(Dividend Year 2 / (1 + Rate of Return)^2) +
(Dividend Year 3 / (1 + Rate of Return)^3)
Plugging in the values:
Price per Share Today = ($13.00 / (1 + 0.15)) +
($19.00 / (1 + 0.15)^2) +
($25.00 / (1 + 0.15)^3)
After calculating the expression, you will find the price per share today.
Please note that these calculations are based on the assumptions provided and may not reflect the actual values or outcomes. Additionally, investing decisions should consider various factors and consult with a financial advisor.