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Constant and Differential Dividend Growth Models

Dry Goods is expected to pay annual dividends of 1.15 , 1.20 and 1.35 a share over the next 3 years, respectively. After that the dividend is expected to increase by 2.5% annual. What's one share of this stock worth today if similar stocks are yielding a 9.5% return?
a. 18.14
b. 18.78
c. 19.26
d. 19.73

Concord Rail recently announced that it will pay its first annual dividend next year in the amount of $0.45 a share. The dividend will be increased by 4% annually thereafter. How much are you willing to pay today for one share of this stock if you require a 10% rate of return?

a. 6.50
b. 6.80
c. 7.50
d. 8.65

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The first question is an example of a differential dividend ...

Solution Summary

Dry Goods is expected to pay annual dividends of 1.15 , 1.20 and 1.35 a share over the next 3 years, respectively. After that the dividend is expected to increase by 2.5% annually. What's one share of this stock worth today if similar stocks are yielding a 9.5% return?
a. 18.14
b. 18.78
c. 19.26
d. 19.73

Concord Rail recently announced that it will pay its first annual dividend next year in the amount of $0.45 a share. The dividend will be increased by 4% annually thereafter. How much are you willing to pay today for one share of this stock if you require a 10% rate of return?

a. 6.50
b. 6.80
c. 7.50
d. 8.65

$2.19