You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15 percent for the next 3 years, resulting in dividends of D1 = $2.30, D2 = $2.645, and D3 = $3.04. The long-run normal growth rate after year 3 is expected to be .10 (that is, a constant growth rate after year 3 of 10% per year forever). If you require a .14 interest rate, how much should you be willing to pay for this stock? Instruction: Type your answer in dollars, and round to two decimal places.
You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15 percent for the next 3 years, resulting in dividends of D1 = $2.30, D2 = $2.645, and D3 = $3.04. The long-run normal growth rate after year 3 is expected to be .10 (that is, a constant growth rate after year 3 of 10% per year forever). If you require a .14 interest rate, how much should you be willing to pay for this stock? Instruction: Type your answer in dollars, and round to 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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Question
You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15 percent for the next 3 years, resulting in dividends of
D1 = $2.30, D2 = $2.645, and D3 = $3.04. The long-run normal growth rate after year 3 is expected to be
.10 (that is, a constant growth rate after year 3 of 10% per year forever). If you require a .14 interest rate, how much should you be willing to pay for this stock?
Instruction: Type your answer in dollars, and round to two decimal places.
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