Describe behavior of present value of each future dividend

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Reference no: EM13333522

Suppose a dividend of $1.25 was paid. The stock has a required rate of return of 11.2% and investors expect the dividend to grow at a constant rate of 10%. Complete parts (a) through (e) below.

a) Compute D0, D1, D2, D3 and D7.

b) Compute the present value of the dividends for t = 3 years.

c) Compute the current market price.

d) Assume that the constant growth rate is actually 0%. What is the current market price?

e) Describe the behavior of the present value of each future dividend (i.e. the behavior as t increases).

Reference no: EM13333522

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