Dividend Growth Model  Practice Questions
(1)
Find the price of a stock (P
0
) if the dividend just paid (D
0
) = $1.50; the growth rate of
dividends, g,
is 10%; and the cost of equity (R
E
) = 12%.
(2)
Find the price of a stock (P
0
) if the dividend just paid (D
0
) = $2.50; the growth rate of
dividends is 5%; and the cost of equity (R
E
) = 20%.
(3)
What is the value of stock in a company that just paid out $1.50 per share in dividends
and expects these dividends to grow at a rate of 6% forever, if investors require a 13%
return?
(4)
If the price of a stock (P
0
) is $40; the dividend paid (D
0
) = $4; the cost of
equity (R
E
) = 15%, find g.
(5)
If P
0
is $20, D
0
= $2.20; and the growth rate in dividends is 12%.
Find R
E
.
(6)
AOL’s dividends grow at a rate of 25% for the first 4 years, and then at a rate of 5%
thereafter.
If D
0
= $15; and R
E
= 12%; find the price of the stock.
(7)
AOL’s dividends grow at a rate of 40% for the first 6 years, and then at a rate of 12%.
If D
0
= $25; and R
E
= 20%; find the price of the stock.
(8)
AOL’s dividends grow at a rate of 30% for the first 5 years, and then at a rate of 10%.
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 Spring '10
 GeorgeKowaski
 Finance, Dividends, Dividend, Real Estate Investment Trust, $65, $15, $40, Joint stock company

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