Ibis Company is expected to pay a $1.50 dividend next year. Dividends are expected to grow at

Question:

Ibis Company is expected to pay a $1.50 dividend next year. Dividends are expected to grow at 3 percent forever and the required rate of return is 7 percent.

a. What is the price of Ibis today?

b. What is the expected dividend yield?

c. What is the expected capital gains yield?

d. In one year, immediately after the dividend is paid,

i. What is the price of the stock?

ii. What was the one-year holding period return?

iii. Looking forward one year, what are the expected dividend and capital gains yields?

e. In year 10, immediately after the dividend is paid,

i. What is the price of the stock?

ii. What was the one-year holding period return (year 9 to 10)?

iii. Looking forward one year, what are the expected dividend and capital gains yields?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...