A company just paid a dividend of $4.15 per share. The company is expected to increase its dividend by 19% next year and then decrease its dividend growth rate by 5% annually until it reaches 9%. This 9% dividend growth rate is expected to be maintained by the company forever. Investors require a 13.45% return on this stock. Three years from now, what dividend amount per share is the stock expected to pay? Rounded to 2 decimal places

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
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A company just paid a dividend of $4.15 per share. The company is expected to increase its dividend by 19% next year and then decrease its dividend growth rate by 5% annually until it reaches 9%. This 9% dividend growth rate is expected to be maintained by the company forever. Investors require a 13.45% return on this stock. Three years from now, what dividend amount per share is the stock expected to pay? Rounded to 2 decimal places

 

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Dividend model have been used to calculate the price of stock based on the two stage growth model one is variable growth and another is constant growth.

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