Answers
This answer is corrected. The original approach and equation listed were correct. I mistyped one of the sign when ientered it in my calculator and thats why i got the wrong final number. Here it is again, but corrected.
where i is the rate of return and g is the annual growth rate
That is the general equation to a set dividend one year from now that grows at a certain rate. We will have to use a slightly more complex model.
Price = PV of first dividend + PV of second dividend + PV of third dividend + PV of fourth dividend + PV of all future divididends growing at arate of 4.4% =
You would be willing to pay $5.56
The first 4 terms are simple present values of future payments.
The last term is the present value of the stock according to the next dividend(which increased by 4.4% from the previous year) discounted back to time zero.
.
where i is the rate of return and g is the annual growth rate
That is the general equation to a set dividend one year from now that grows at a certain rate. We will have to use a slightly more complex model.
The first 4 terms are simple present values of future payments. The last term is the present value of the stock according to the next dividend(which increased by 4.4% from the previous year) discounted back to time zero.
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