Question 1 The company A’s stock has paid dividends of $1.75 over the past 12 months. Its historical growth rate of divi
Posted: Mon Jan 17, 2022 8:09 am
Question 1
The company A’s stock has paid dividends of $1.75 over the past
12 months. Its historical growth rate of dividends has been 5% but
analysts expect the growth rate to be 6% annually for the
foreseeable future.
solves
i) Determine the value of the stock if the required rate of
return on stocks of similar risk is 11%. Please show each step of
your calculation.
ii) If analysts believe the risk premium on the stock should be
decreased by 0.5%, what is the new required rate of return on
company A’s stock? What is the percentage change in price compared
with part i)? Please show each step of your calculation.
The company A’s stock has paid dividends of $1.75 over the past
12 months. Its historical growth rate of dividends has been 5% but
analysts expect the growth rate to be 6% annually for the
foreseeable future.
solves
i) Determine the value of the stock if the required rate of
return on stocks of similar risk is 11%. Please show each step of
your calculation.
ii) If analysts believe the risk premium on the stock should be
decreased by 0.5%, what is the new required rate of return on
company A’s stock? What is the percentage change in price compared
with part i)? Please show each step of your calculation.