35. A stock has a price (i.e., present value of all cash flows from the stock...
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35. A stock has a price (i.e., present value of all cash flows from the stock expected by investors) of $33.00 today. It is expected to pay a dividend of $1.10 per share next year, $1.20 per share in the following year, $1.90 in the subsequent U years (i.e., pay a dividend of $1.90 in years 3 through year U+2 into the future), and then be sold for $36.00 in U+2 years (where that $36 represents the present value of all dividends expected after U+2 years). Compute the interest rate or expected return on this stock (i.e., iterate to find the r that sets the sum of the present value of the future expected cash flows equal to the $33 present value). 35. A stock has a price (i.e., present value of all cash flows from the stock expected by investors) of $33.00 today. It is expected to pay a dividend of $1.10 per share next year, $1.20 per share in the following year, $1.90 in the subsequent U years (i.e., pay a dividend of $1.90 in years 3 through year U+2 into the future), and then be sold for $36.00 in U+2 years (where that $36 represents the present value of all dividends expected after U+2 years). Compute the interest rate or expected return on this stock (i.e., iterate to find the r that sets the sum of the present value of the future expected cash flows equal to the $33 present value).
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Answer rating: 100% (QA)
The interest rate or expected return on this stock can be found by using the present value formula P... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
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