Question

Q7 If the dividend yield for year 1 is expected to be 7% based on a stock price of $30, what will the year 5 dividend be if dividends grow annually at a constant rate of 8% (in $ dollars)

Answer 1

Answer:

$2.86

Explanation:

Dividend yield = Dividend in year 1 / Price

0.07 = Dividend in year 1 / $30

Dividend in year 1 = $30 * 0.07

Dividend in year 1 = $2.1

Dividend in 5 years = Dividend in year 1 * (1+growth rate)^4

Dividend in 5 years = $2.1 * (1.08)^4

Dividend in 5 years = $2.1 * 1.36048896

Dividend in 5 years = $2.857026816

Dividend in 5 years = $2.86