Dividends is expected to be constant

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1. ABC Inc. just paid a dividend of $ 10 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 12 percent for the first three years, a return of 8 percent for the next three years, and a return of 6 percent thereafter. What is the current share price?

2. Consider a stock that is going to pay a dividend of $5 in year 1. Dividends are going to be constant from year 1 to year 5. From year 5 to year 6 dividends will grow at a rate of 6%. They will then grow at the rate of 5% each year forever. The required rate of return is 10%. What is the stock price today?

Reference no: EM134040174

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