A share of common stock is expected to pay a dividend of $5.50 in one year (which
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Question:
A share of common stock is expected to pay a dividend of $5.50 in one year (which implies that DIV1= $5.50).The stock's dividend is projected to increase at a constant rate of 5% per year (g = 5%).The required rate of return on the stock, is 12.5%
(r = 12.5%).Based on thisinformation and the fact that this is a constant growth stock, what should be the market price of thisstock today (find P0).Assuming that everything remains constant (which implies that r = 12.5%and g = 5% going forward) what do you expect this stock's price will be eight years from today (P8),or by the year 2028?
Today's Price (P0) =
Expected Price in 8 Years (P8= P2028) =
Expert Answer:
To solve this problem we can use the constant growth dividend discount model Gordon growth model ... View the full answer
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