## Consider the following three stocks: Stock A is expected to provide a dividend of \$10.20 a share forever. Stock B is expected to pay a dividend of...

 Consider the following three stocks:
 a. Stock A is expected to provide a dividend of \$10.20 a share forever. b. Stock B is expected to pay a dividend of \$5.20 next year. Thereafter, dividend growth is expected to be 6% a year forever. c. Stock C is expected to pay a dividend of \$5.20 next year. Thereafter, dividend growth is expected to be 22% a year for five years (i.e., until year 6) and zero thereafter.

a-1.

If the market capitalization rate for each stock is 12%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a) b) c) Stock Price Stock Price i) ii) =

= D/Ke

\$ =

= D1/(ke-g)

\$

86.67 Year

Dividend

Discount Factor

Present Value \$ 1

5.20 \$

0.893

4.64 \$ =

= Where,

D1

Ke

g =

=

= 2

6.34 \$

0.797

5.06 \$ Present...

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This question was answered on: Oct 15, 2019

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