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a company will pay out a dividend of 4
a company will pay out a dividend of 4.8 SEK to its stock holders in one year's time. The next dividend will be 6.9 SEK (and it is paid one year later, so two years from now) and after that the annual dividend will grow by 1.9%.
Given that the cost of equity is 8%, what is the price of the stock today?
(Answers are rounded to one decimal)
a. 109.2
b. 16.4
c. 114.2
d. 85.7
e. 111.2
Expert Solution
D1 = 4.8 ,
D2 = 6.9,
D3 = D2*(1+g) = 6.9*(1+ 0.019) = 7.0311
P2 = D3/(ke - g) = 7.0311/(0.08-0.019) = 115.2639
Price of stock today = D1/(1+ke) + D2/(1+ke)^2 + P2/(1+ke)^2
Price of stock today = 4.8/(1+0.08) + 6.9/(1+0.08)^2 + 115.2639/(1+ 0.08)^2 = 109.1802 = 109.2
Answer : a : 109.2
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