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# Stock Value and Rate of Return of Dividend

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ABC currently pays a dividend of \$2 a share and the dividend will grow at 15\$ per year for 3 years, and then at 10% for the next 3 years, later it is expected to grow at 5% forever.
1)What value would place on the stock at a rate of return of 18%?
2)Would your value change if you held the stock for only 3 years?

Please explain in details the steps of solving this problem and please attach any Excel sheets.

#### Solution Preview

ABC currently pays a dividend of \$2 a share and the dividend will grow at 15% per year for 3 years, and then at 10% for the next 3 years, later it is expected to grow at 5% forever.

1)What value would place on the stock at a rate of return of 18%?

r= 18.00%

Year Dividend growth rate Dividend
0 D0 \$2.000
1 D1 15% \$2.3000 =( 1 + 15.% ) x \$2.
2 D2 15% \$2.6450 =( 1 + 15.% ) x \$2.3
3 D3 15% \$3.0418 =( 1 + 15.% ) x \$2.645
4 D4 10% \$3.3460 =( 1 + 10.% ) x \$3.0418
5 D5 10% \$3.6806 =( 1 + 10.% ) x \$3.346
6 D6 10% \$4.0487 =( 1 + 10.% ) x \$3.6806
7 D7 5.0% \$4.2511 =( 1 + 5.% ) x \$4.0487

Find the price of the stock at end of year ...