Ch_08_Inclass_Exercise_Solutions

# Ch_08_Inclass_Exercise_Solutions - Ch 08 Inclass Exercises...

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1 Ch 08 Inclass Exercises Solutions ABC is expected to pay a dividend of \$2.50 next period and dividends are expected to grow at 4% per year. The required return is 10%. 1. What is the estimated current price? (41.67) To find a current price Dividend Growth Model (DGM) Dividend 2.50 g - Expected growth rate of dividends 4.00% R - Required return 10.00% Using last paid dividend (Usually D 0 ) PV - Current Price 43.33 Using next expected dividend (Usually D 1 ) PV - Current Price 41.67 2. What is the estimated price 3 years from now? (46.87) To find a future price Dividend Growth Model (DGM) Dividend 2.50 g - Expected growth rate of dividends 4.00% R - Required return 10.00% Future year number 3 Using last paid dividend (Usually D 0 ) Future Price 48.74 Using next expected dividend (Usually D 1 ) Future Price 46.87

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2 Suppose a firm’s stock is selling for \$33.50. They just paid a \$3 dividend and dividends are expected to grow at 3% per year. 3. What is the required return?
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Ch_08_Inclass_Exercise_Solutions - Ch 08 Inclass Exercises...

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