Attempt Keep the Highest/1 12. Ch. 7 Expected dividends as a basis for stock values A stock's current dividend is $1.00, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the 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 (De) and the PV of the dividends expected to be paid 10, 20, and 50 years from now (D.D, and Duo). Assume that the stock's required return (r) is 8.40%. Expected Dividend's Time Period Future Value Present Value Now End of Year 10 End of Year 20 End of Year 50 Using the grey curve (star symbols), plot the present value of each of the expected future dividends for years 10, 20, and 50. The resulting curve w winstrate how the PV or a particular dividend payment will decrease depending on how far from today the dividend is expected to be received Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before plotting it on the graph (Tooltip: Mouse over the points in the graph to see their coordinates.) using the grey curve (stav symbols), put the present value of each of the expected future dividers for years 10, 20, and 50. The resulting curve will Nilustrate how the PV of a particular dividend payment will decrease depending on how far from today the dividend is expected to be received Note: Round each of the discounted values of the of dividends to the nearest tenth decimal place before platting it on the graph. (Tooltip: Mouse ove the points in the graph to see their coordinates.) 5.00 400 Discounted Dividende FV of Dividends 200 DIVIDENDS (5) 200 2.00 PV of Dividends 10 YEARS