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A stock just paid an annual dividend of $1.6. The dividend is expected to grow by...

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Finance

A stock just paid an annual dividend of $1.6. The dividend isexpected to grow by 9% per year for the next 4 years. The growthrate of dividends will then fall steadily from 9% after 4 years to4% in year 8.

The required rate of return is 12%.

What is the stock price if the dividend growth rate will stay 4%forever after 8 years?

Answer & Explanation Solved by verified expert
4.3 Ratings (836 Votes)
We have following information D0 current dividend paid 160 per share k required rate of return cost of equity 12 g growth rate of dividends 9 for year 1 year 2 year 3 and year 4 The growth rate of dividends will then fall steadily from 9 after 4 years to 4 in year 8    See Answer
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Transcribed Image Text

A stock just paid an annual dividend of $1.6. The dividend isexpected to grow by 9% per year for the next 4 years. The growthrate of dividends will then fall steadily from 9% after 4 years to4% in year 8.The required rate of return is 12%.What is the stock price if the dividend growth rate will stay 4%forever after 8 years?

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