A company's upcoming dividend is $3.00 per share. The expected dividend growth rates for the next three years are 8%, 7%, and 5%, respectively. Following Year 4, dividends are anticipated to grow at a constant 4% annual rate forever. The stock's beta is 3, the market return is 12%, and the risk-free rate is 2%. Assume that all estimates remain constant over time and the stock is always priced at its fair value. If you purchase the stock today and sell it in Year 4 right after you receive the fourth dividend, what will be your total profits in dollar terms?

Answer rating: 100% (QA)

To calculate the total profits in dollar terms we need to determine the future dividends and the selling price of the stock in Year 4 Given Dividend i... View the full answer