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Homework answers / question archive / Suppose that we expect IBM will pay $8 per share as dividends in 4 years, and the dividends afterward are able to grow at 10%
Suppose that we expect IBM will pay $8 per share as dividends in 4 years, and the dividends
afterward are able to grow at 10%. The required rate of return on equity is 14%. What is the
price that we expected in 3 years?
price expected in 3 years = dividend of year 4 / (required return - growth rate)
here,
dividend of year 4 = $8
required return = 14%=>0.14
growth rate = 10%=>0.10
price expected in 3 years = $8 / (0.14-0.10)
=>$200.
