Assume that a share of stock has just paid an annual dividend (Do) of $1.80 at...

 

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Assume that a share of stock has just paid an annual dividend (Do) of $1.80 at Year O. It is then expected to pay a dividend of $3.00 at Year 1, a dividend of $3.50 at Year 2, a dividend of $4.00 at Year 3, and a dividend of $4.50 at Year 4. The dividend is then expected to grow at a long-run sustainable annual growth rate of 3 percent. Also assume that investors require a 9.5 percent annual rate of return. Given this information, determine the expected dividend yield at Year O for this stock. Assume that a share of stock has just paid an annual dividend (Do) of $1.80 at Year O. It is then expected to pay a dividend of $3.00 at Year 1, a dividend of $3.50 at Year 2, a dividend of $4.00 at Year 3, and a dividend of $4.50 at Year 4. The dividend is then expected to grow at a long-run sustainable annual growth rate of 3 percent. Also assume that investors require a 9.5 percent annual rate of return. Given this information, determine the expected dividend yield at Year O for this stock.

Answer rating: 100% (QA)

To determine the expected dividend yield at Year O for the stock we need to calculate the dividend y... View the full answer