Pick a stock from the S&P 500 and find the following information on the stock: Current dividend, current selling price.

Find information on how the dividend has changed over time. If you cannot find at least 5 years' worth of dividend data, choose a new stock. (Note, I can not use an analysis of MSFT, AAPL, INTC, ORCL, or IBM.)

Your tasks:

1. Estimate the dividend growth rate.

2. Using your information on current price, current dividend, and estimated growth rate, estimate the effective annual interest rate, using the growing perpetuity formula. (Many firms pay out dividends multiple times per year. Make sure to take this into account of your calculation.You should also account for when the next dividend will be paid.)Make your calculations as clear as possible; there should be no ambiguity as to which numbers are being used.

3. Repeat estimating the effective annual interest rate using the value of the stock on July 1, 2020.

4. State the sources you accessed the information you found. Also state the date(s) that you accessed the information.

 

5. State which discount rate you believe to be more accurate, and why?

Answer rating: 100% (QA)

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