Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g= 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is r, = 9.00%. The dividend received in period 1 is D₁ = $1.00x (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P₂ Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Dividend Price (Dollars) (Dollars) $1.00 $26.25 Period 0 PV of dividend at 9.00% (Dollars)

Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g= 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is r, = 9.00%. The dividend received in period 1 is D₁ = $1.00x (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P₂ Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Dividend Price (Dollars) (Dollars) $1.00 $26.25 Period 0 PV of dividend at 9.00% (Dollars)

Name: Ch 09- Video Lesson - Stocks and Their ValuationSuppose that Do = $1.
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Description: Ch 09- Video Lesson - Stocks and Their ValuationSuppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate ofg= 5.00% per year and that the stock's price will grow at

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter9: Stocks And Their Valuation

Section: Chapter Questions

Problem 6DQ

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