Purchase Solution

Expected Dividends

Not what you're looking for?

Ask Custom Question

Question 7 (Stocks) (12 marks)

Your broker offers to sell you some shares of XYZ Co. common stock that paid a dividend of $2 today. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and then at 10% forever. The interest rate is 12%.

(a) Find the expected dividend for each of the next four years? (4 marks)

(b) What is the fair price of the stock three years from now? (4 marks)

(c) What is the fair price of the stock today? (4 marks)

Attachments
Purchase this Solution
Solution Summary

This solution is comprised of a detailed explanation to find the expected dividend for each of the next four years, and answer what is the fair price of the stock three years from now and the fair price of the stock today.

Solution Preview

Question 7 (Stocks) (12 marks)

Your broker offers to sell you some shares of XYZ Co. common stock that paid a dividend of $2 today. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and then at 10% forever. The interest rate is 12%.

(a) Find the expected dividend for ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • This post discusses the relation between div. yield & return

    What about the relation between their dividends yields and expected returns? Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related?

  • Determining Stock Price and Equilibrium Expected Growth Rate

    dividends for these years Expected dividends = Dividends last period x (1+ Expected growth rate this year) Third, compute the present values of these expected dividends Present values = PV Factor * Expected Dividends PV Factor

  • Dorpac Corporation

    Dorpac's equity cost of capital is 8%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac's dividends?

  • Current and Expected Price of Stock

    It comes to $18.08 What is the expected price of the stock on April 21st, 2014?? The expected price on April 21, 2014 is the present value of all dividends from 2015 onwards. That we have already found above.

  • Computing dividends, expected return and stock price

    368154 Computing dividends, expected return and stock price A company will pay $2 dividends next year. These dividends are expected to grow at a rate of 15% for four years. Afterward, the long term growth rate is expected to settle at 4%.

  • Lawrence Industries Market value

    The dividends and expected growth annually is calculated and given in an excel sheet.

  • Ludwig Corporation: Growth Rate in Dividends and Yield

    What is the stock's expected total rate of return? Please refer to the attached document for a more in-depth explanation of the calculations. a. Calculate the growth rate in dividends.

  • Non constant growth stock

    The constant growth formula is Present Value = Expected Dividends/(Rate of Return - Growth rate) Here the expected dividend in year 3 is 4X1.05 = 4.20 Rate of Return is 12% Growth rate = 5% Present value of dividends from year 3 = 4.20/(0.12-0.04

  • Stocks

    Expected quarterly dividends: $0.70 Expected stock price in 3 years: $15.00 Required market rate of return: 12% You have no expectations regarding dividends after 3 years.

  • Dividend Smoothing

    Change in dividends = Partial Adjustment Coefficient*((Expected net income*target payout ratio)-current dividend) Change in dividends = .3*(($4.15*.40)-$1.50) Change in dividends = .3*($1.66-$1.50) Change in dividends = .3*$.16 Change in dividends

View More Related Solutions