A corporation has not paid dividend in the past and does not plan to do so for the next year, i.e., D₁-0. Due to its growth potential, investors expect the company to start paying dividends in year 2. They expect the dividends for year 1 to year 3 to be $0, $1.6 and $8.2 and all the subsequent dividends to growth at 4% annual rate indefinitely. Investors require 7% of return on their investments as risky as this stock. What is the fair value of the stock today? Round your calculations to the nearest $0.01, i.e., two decimal places.
A corporation has not paid dividend in the past and does not plan to do so for the next year, i.e., D₁-0. Due to its growth potential, investors expect the company to start paying dividends in year 2. They expect the dividends for year 1 to year 3 to be $0, $1.6 and $8.2 and all the subsequent dividends to growth at 4% annual rate indefinitely. Investors require 7% of return on their investments as risky as this stock. What is the fair value of the stock today? Round your calculations to the nearest $0.01, i.e., two 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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A corporation has not paid dividend in the past and does not plan to do so for
the next year, i.e., D₁-0. Due to its growth potential, investors expect the
company to start paying dividends in year 2. They expect the dividends for
year 1 to year 3 to be $0, $1.6 and $8.2 and all the subsequent dividends to
growth at 4% annual rate indefinitely. Investors require 7% of return on their
investments as risky as this stock. What is the fair value of the stock today?
Round your calculations to the nearest $0.01, i.e., two decimal places.
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