13. Company RTZ has a unique dividend policy. The company anticipates paying a dividend of $8 one year from today, $7 two years from today, and $6 three years from today. After the third year, the company anticipates increasing the dividend at a rate of 4% per year, indefinitely. If the return required by shareholders is 12%, then the price of the stock should be 0 1 2 3% 4 3% 5 3% $5.00 $6.00 $7.00 Step 1: Present value of non-constant dividends Step 2: Value of the stock at year 3: Do * (1+g) k-g = Step 3: Present value of the year 3 stock value Step 4: Value of the stock today
13. Company RTZ has a unique dividend policy. The company anticipates paying a dividend of $8 one year from today, $7 two years from today, and $6 three years from today. After the third year, the company anticipates increasing the dividend at a rate of 4% per year, indefinitely. If the return required by shareholders is 12%, then the price of the stock should be 0 1 2 3% 4 3% 5 3% $5.00 $6.00 $7.00 Step 1: Present value of non-constant dividends Step 2: Value of the stock at year 3: Do * (1+g) k-g = Step 3: Present value of the year 3 stock value Step 4: Value of the stock today
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:13. Company RTZ has a unique dividend policy. The company anticipates paying a dividend of $8 one
year from today, $7 two years from today, and $6 three years from today. After the third year, the
company anticipates increasing the dividend at a rate of 4% per year, indefinitely. If the return required
by shareholders is 12%, then the price of the stock should be
0
1
2
3%
4
3%
5
3%
$5.00
$6.00
$7.00
Step 1: Present value of non-constant dividends
Step 2: Value of the stock at year 3: Do * (1+g)
k-g
=
Step 3: Present value of the year 3 stock value
Step 4: Value of the stock today
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