Current and Expected Price of Stock
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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??
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Solution Summary
The solution explains how to calculate the current and expected price of stock. The expected price of the stock on April 21st, 2014 is determined.
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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 ...
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