Question 1 The company A’s stock has paid dividends of $1.75 over the past 12 months. Its historical growth rate of div
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.