Problem set solution FINANCIAL ECONOMICS - EXCEL (expected value of stock)

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Excel exercises 3. XYZ Inc. is expected to pay no dividends for the next 5 years. However, at the end of the sixth year (at time 6), the company is expected to pay a dividend of $1/share. Dividends are expected to grow at 10% per year for the following 9 years through the end of the 15 year, i.e., time 15), then to grow at 5% every year thereafter (forever). Assume the appropriate discount rate (required return) is 10%. a. What is the expected value of the stock at time 15? b. What is the expected value of the stock at time 5? c. What is the value of the stock today