It is year end, and RSG Investment Bank's stock is currently selling at $41.00 per share,...

 

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It is year end, and RSG Investment Bank's stock is currently selling at $41.00 per share, just after paying out its annual dividend. The risk-free rate is 1.7% and the expected market return is 7%. The beta for RSG was recently quoted as 0.8. Historically, RSG has paid a dividend equal to 3% per share of the stock price, once a year at year end, so RSG paid its shareholders 3% of the pre-dividend stock price per share at year end this year, and is expected to pay out 3% of next year's price at the end of the coming year, and so on. What is the expected stock price of RSG at year-end, 2 years from now, after paying out that year's dividend? What would the expected price be just before the dividend is paid out? What would be stock price 2.5 years from now? It is year end, and RSG Investment Bank's stock is currently selling at $41.00 per share, just after paying out its annual dividend. The risk-free rate is 1.7% and the expected market return is 7%. The beta for RSG was recently quoted as 0.8. Historically, RSG has paid a dividend equal to 3% per share of the stock price, once a year at year end, so RSG paid its shareholders 3% of the pre-dividend stock price per share at year end this year, and is expected to pay out 3% of next year's price at the end of the coming year, and so on. What is the expected stock price of RSG at year-end, 2 years from now, after paying out that year's dividend? What would the expected price be just before the dividend is paid out? What would be stock price 2.5 years from now?

Answer rating: 100% (QA)

To calculate the expected stock price of RSG at yearend 2 years from now after paying out that years dividend we need to consider the dividend payments and the expected return on the stock Given infor... View the full answer