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A company has common stock which paid a dividend of $2.75 per share last year. The company expects that earnings and dividends will grow by 15% for the next tw years before dropping to a constant 9% growth rate afterward. The required rate of return is 13%. 4 a) What is the current price per share of the stock? b) What is the expected market price of the share in one year? c) Calculate the expected dividend yield at the end of the first year d) Calculate the expected capital gains yield at the end of the first year

A company has common stock which paid a dividend of $2.75 per share last year. The company expects that earnings and dividends will grow by 15% for the next tw years before dropping to a constant 9% growth rate afterward. The required rate of return is 13%. 4 a) What is the current price per share of the stock? b) What is the expected market price of the share in one year? c) Calculate the expected dividend yield at the end of the first year d) Calculate the expected capital gains yield at the end of the first year

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 16MC
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A company has common stock which paid a dividend of $2.75 per share last year. The company expects that earnings and dividends will grow by 15% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return is 13%. h a) What is the current price per share of the stock? b) What is the expected market price of the share in one year? c) Calculate the expected dividend yield at the end of the first year d) Calculate the expected capital gains yield at the end of the first year
Transcribed Image Text:A company has common stock which paid a dividend of $2.75 per share last year. The company expects that earnings and dividends will grow by 15% for the next two years before dropping to a constant 9% growth rate afterward. The required rate of return is 13%. h a) What is the current price per share of the stock? b) What is the expected market price of the share in one year? c) Calculate the expected dividend yield at the end of the first year d) Calculate the expected capital gains yield at the end of the first year
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