b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends have grown at a constant rate of 1.5% over the last 15 years and you expect this to continue. i. If the required rate of return on the stock is 12%, what is the fair present value? ii. If the required rate of return on the stock is 15%, what should the fair value be four years from today?

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter16: The Markets For Labor, Capital, And Land
Section: Chapter Questions
Problem 12P
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b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends
have grown at a constant rate of 1.5% over the last 15 years and you expect
this to continue.
i.
If the required rate of return on the stock is 12%, what is the fair
present value?
If the required rate of return on the stock is 15%, what should the
fair value be four years from today?
ii.
Transcribed Image Text:b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends have grown at a constant rate of 1.5% over the last 15 years and you expect this to continue. i. If the required rate of return on the stock is 12%, what is the fair present value? If the required rate of return on the stock is 15%, what should the fair value be four years from today? ii.
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