5. Expected dividends as a basis for stock values The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00, and dividends are expected to grow at a constant rate of 4.7% per year. The value of a stock should be the present value (PV) of all dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends Calculate the PV of the dividend paid today (Do) and the PV of the dividends expected to be paid 10 and 20 years from now (D10 and D20). Assume that the stock's required return (rs) is 10.2% Using the orange curve (square symbols), plot the PV of these dividends on the following graph. The resulting curve will illustrate how, under these assumptions, the PV of a particular dividend payment will decline depending on how far from today the dividend is expected to be received. (Note: Round the PV of dividends to the nearest tenth place on the graph.) Tool tip: Mouse over the points on the graph to see their coordinates DIVIDEND (Dollars] 3.0 2.7 PV of Dividends 0.6 0.3 0.0 12 16 20 YEARS Clear AlL