Assume IBM pays out all earnings as dividends. Today is t = 0 and IBM just paid a $2 dividend on $2 of earnings. The market expects dividends will grow each year by 5% until t = 4 and then grow each year by 6% until t = 8, and then grow at some constant rate g thereafter. Right after today's dividend was paid, IBM was trading at a price of $80. The equity discount rate is 10%.

a)  What is the market expecting the PE ratio to be at t = 7 (where E in the PE ratio is based on expected earnings at t = 8, and P is based on the t = 7 ex-dividend stock price).
 
b)  What is the market expecting g to be?

Posted Date: 3/16/2013 1:19:54 AM | Location : United States

Ask an Expert

Related Discussions:- The equity discount rate , Assignment Help, Ask Question on The equity discount rate , Get Answer, Expert's Help, The equity discount rate Discussions

Write discussion on The equity discount rate
Your posts are moderated

Write your message here..

Related Questions

Money, how can I get? how can I get?

What is meant by underwriting, Question 1: (a) What is meant by underwr... Question 1: (a) What is meant by underwriting? (b) How can underwriting be used to manage the risks of a life insurance company? (c) Give and describe the three types of

Limitations of middle asia stock exchange index, Limitations of Middle Asia... Limitations of Middle Asia Stock Exchange Index 1. The twenty (20) company's sample whose share prices are utilized to calculate the index are not true representatives. 2.

Aafafa, Ask lajgkjasbgksabgbaskjbaskjbasjgbhjabgjbjgbskjgbkasbgjkabksgbksbg... Ask lajgkjasbgksabgbaskjbaskjbasjgbhjabgjbjgbskjgbkasbgjkabksgbksbgkabkhvakkvbaoygfyabkbkkye#Minimum 100 words accepted#

Real Estate - Mortgage Prequalification, Bob and Jackie came to your bank s... Bob and Jackie came to your bank seeking an FHA mortgage. They want to know how large a mortgage they would be qualified for and what the terms would be. Bob is a pastry chef (

Project, hi hi

Foreign credit insurance association (fcia), Foreign Credit Insurance Assoc... Foreign Credit Insurance Association (FCIA) An agent of the Export/Import Bank, FCIA gives exporters with insurance coverage beside both commercial and political risk. The main

Finance, Pls help with this + provide references > Briefly outline the mos... Pls help with this + provide references > Briefly outline the most recent balance of payments experience for China and comment on whether the balance of payments situation will ha

Explain mechanics of security trading in stock exchange, Explain Mechanics ... Explain Mechanics of security trading in Stock Exchange Introduction: An investor should have some knowledge of how the securities markets operate. Marketing of old or new se

Significant features of partnership, Significant Features of Partnership ... Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l