Question 1:
Score 0/1
Your response
Correct response
Stock Values
Banya, Inc., just paid a dividend of $1.24 per share on its stock. The dividends are expected to grow at a constant
rate of 5 percent per year, indefinitely. If investors require a 12 percent rate of return on Banya stock, the price of
the stock today is $
(0%). The price of the stock in 4 years will be $
(0%), and the price of the stock in
11 years will be $
(0%).
(Round your answers to 2 decimal places. Omit the "$" sign in your
response.)
Stock Values
Banya, Inc., just paid a dividend of $1.24 per share on its stock. The dividends are expected to grow a
rate of 5 percent per year, indefinitely. If investors require a 12 percent rate of return on Banya stock,
the stock today is $
18.6 with a tolerance of ± 1.0%
. The price of the stock in 4 years will
with a tolerance of ± 1.0%
, and the price of the stock in 11 years will be $
31.81 with a t
of ± 1.0%
.
(Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Total grade:
0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
The constant dividend growth model is:
P
t
= D
t
× (1 +
g
) / (
R
–
g
)
So, the price of the stock today is:
P0 = D0 (1 +
g
) / (
R
–
g
)
P0 = $1.24 (1.05) / (0.12 – 0.05)
P0 = $18.60
The dividend at year 5 is the dividend today times the FVIF for the growth rate in dividends for 5 years, so:
P4 = D4 (1 +
g
) / (
R
–
g
)
P4 = D0 (1 + g)
5
/ (
R
–
g
)
P4 = $1.24 (1.05)
5
/ (0.12 – 0.05)
P4 = $22.61
We can do the same thing to find the dividend in Year 12, which gives us the price in Year 11, so:
P11 = D11 (1 +
g
) / (
R
–
g
)
P11 = D0 (1 + g)
12
/ (
R
–
g
)
P11 = $1.24 (1.05)
12
/ (0.12 – 0.05)
P11 = $31.81
Question 2:
Score 0/1
Your response
Correct response
Stock Values
The next dividend payment by Carroll, Inc., will be $3.85 per share. The dividends are anticipated to maintain a 7
percent growth rate, forever. If the stock currently sells for $48 per share, the required return of the stock is
(0%) percent.
(Input answer as a percent rounded to 2 decimal places, without the percent sign.)
Stock Values
The next dividend payment by Carroll, Inc., will be $3.85 per share. The dividends are anticipated to m
percent growth rate, forever. If the stock currently sells for $48 per share, the required return of the sto
with a tolerance of ± 1.0%
percent.
(Input answer as a percent rounded to 2 decimal plac
the percent sign.)
Total grade:
0.0×1/1 = 0%
Feedback:
We need to find the required return of the stock. Using the constant growth model, we can solve the equation for
R
. Doing so, we find:
R
= (D1 / P0) +
g
R
= ($3.85 / $48) + 0.07
R
= 0.1502 or 15.02%
Question 3:
Score 0/1
Your response
Correct response
Stock Values
The next dividend payment by Carroll, Inc., will be $3.75 per share. The dividends are anticipated to maintain a 6.5
percent growth rate, forever. The stock currently sells for $76 per share. The dividend yield is
(0%) percent,
and the expected capital gains yield is
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 Spring '07
 ANDELIN,STEVENLE
 Corporate Finance, Dividend, share price, Gordon model

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