During the period 2006–2016, earnings of the S&P 500 Index companies have increased at an average rate of 6.00 percent per year and the dividends paid have increased at an average rate of 2.00 percent per year. Assume that: Dividends will continue to grow at the 2006–2016 rate. The required return on the index is 10 percent. Companies in the S&P 500 Index collectively paid $397.2 billion in dividends in 2016. Estimate the aggregate value of the S&P 500 Index component companies at the beginning of 2017 using the Gordon growth model.
During the period 2006–2016, earnings of the S&P 500 Index companies have increased at an average rate of 6.00 percent per year and the dividends paid have increased at an average rate of 2.00 percent per year. Assume that: Dividends will continue to grow at the 2006–2016 rate. The required return on the index is 10 percent. Companies in the S&P 500 Index collectively paid $397.2 billion in dividends in 2016. Estimate the aggregate value of the S&P 500 Index component companies at the beginning of 2017 using the Gordon growth model.
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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During the period 2006–2016, earnings of the S&P 500 Index companies have increased at an average rate of 6.00 percent per year and the dividends paid have increased at an average rate of 2.00 percent per year. Assume that:
- Dividends will continue to grow at the 2006–2016 rate.
- The required return on the index is 10 percent.
- Companies in the S&P 500 Index collectively paid $397.2 billion in dividends in 2016.
Estimate the aggregate value of the S&P 500 Index component companies at the beginning of 2017 using the
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