Consider a share of stock that pays a dividend of $1 at the end of one year,
Fantastic news! We've Found the answer you've been seeking!
Question:
Consider a share of stock that pays a dividend of $1 at the end of one year, $2 at the end of two years, and then dividends grow at a constant rate of 5% per year thereafter. If the required return is 10%, we can value this share of stock by finding P2 using D3, then find P0 = D1/(1.1) + D2/(1.1)2 + P2/(1.1)1. In this formula, it appears as though we ignore all dividends from year three on. Do you agree or disagree and why so?
Expert Answer:
Posted Date:
