Question: what do i do on these steps? Chapter 7 PowerPoint D 0 = $0.50 D0 Current Dividend per share g = 2% g growth rate
what do i do on these steps?
| Chapter 7 PowerPoint | ||||||||
| D0= $0.50 | D0 | Current Dividend per share | ||||||
| g = 2% | g | growth rate of dividend | ||||||
| R = 15% | r | required rate of return | ||||||
| P = D0 * (1+g) / ( r - g) | ||||||||
| Model Price per share | ||||||||
| Chapter 6 and 7 PDF Notes | ||||||||
| Example 2: Semi-Annual Payments: Coupon rate = 10%, Par = $1,000, Maturity = 5 years, YTM = 11% | ||||||||
| N | ||||||||
| I/Y | ||||||||
| PMT | coupon rate * Par Value | |||||||
| FV | ||||||||
| PV | ? | |||||||
| Example 4: Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of $1,000, 20 years to maturity and is selling for $1,197. | ||||||||
| N | ||||||||
| PMT | ||||||||
| FV | ||||||||
| PV | ||||||||
| I/Y | Equal to Semiannual Yield | |||||||
| Equal to Annual yield | Remember to multiply by 2 to convert to annual | |||||||
| Suppose Big D, Inc. just paid a dividend of $1. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling for? | ||||||||
| current dividend | D0 | |||||||
growth rate of dividends | g | |||||||
| required return | r | |||||||
Model Price per share | P0 | |||||||
| Expected dividend | D1 | |||||||
growth rate of dividends | g | |||||||
| required return | r | |||||||
Model Price per share | P0 | |||||||
| Example 4: P0 = $10.50, D0 = $1, g = 5% per year. What is the required return? | ||||||||
| P0 | ||||||||
| D0 | ||||||||
| g | ||||||||
| r | ? | |||||||
| P=D0*(1+g)/(r-g) | ||||||||
| r=D0*(1+g)/P0 + g |
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