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A stock is expected to pay dividends in 9 periods. The first dividend will be $5.40...

A stock is expected to pay dividends in 9 periods. The first dividend will be $5.40 and subsequent dividends are forecasted to stay constant for the foreseeable future. If the required return on the stock is 8.0%, what is its current value? I keep getting 33.77 as the answer but it's showing 36.47 as the correct answer. Please advise

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Answer #1

Value as on year 9=Annual dividend/required rate

=5.4/0.08

=$67.5

Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)

=5.4/1.08^9+67.5/1.08^9

which is equal to

=$36.47(Approx).

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