Question

Grandiose Growth has a dividend growth rate of 10%. The discount rate is 7%. The end-of-year dividend will be $1 per share. What is the present value of the dividend to be paid in year 1? Year 2? Year 3?

Answer 1

Answer:

year 1 is 0.93

Year 2 is 0.96

Year 3 is 0.98

Explanation:

given data

growth rate = 10%

discount rate = 7%

per share = $1

to find out

present value

solution

we will find present value dividend to be paid

so for 1 year

present value = per share / ( 1 + discount rate )^1

present value = 1 / ( 1 + 0.07 )^1

present value = 0.93

for year 2

present value = per share (1+ growth rate)  / ( 1 + discount rate )²

present value = 1 (1+ 0.10)  / ( 1 + 0.07 )²

present value = 0.96

for year 3

present value = per share (1+ growth rate)²  / ( 1 + discount rate )³

present value = 1 (1+ 0.10)²  / ( 1 + 0.07 )³

present value = 0.98