Share
Explore BrainMass

Current and Expected Price of Stock

You are buying XYZ stock. It just paid a dividend of $2.13 on April 21st 2007 and is expected to pay decreasing dividends for the next seven years on April 21st until 2014. The rate of the decrease is 3%. After that, the dividend will grow at a constant rate of 5% forever (on each April 21st, starting in 2015, you start to receive increasing dividends). The required rate of return is 13%.

What is the current price of the stock??
What is the expected price of the stock on April 21st, 2014??

Attachments

Solution Preview

3) You are buying XYZ stock. It just paid a dividend of $2.13 on April 21st 2007 and is expected to pay decreasing dividends for the next seven years on April 21st until 2014. The rate of the decrease is 3%. After that, the dividend will grow at a constant rate of 5% forever (on each April 21st, starting in 2015, you ...

Solution Summary

The solution explains how to calculate the current and expected price of stock

$2.19