Question

What is the current share value of Rising Bank's stock to an investor who has a required rate of return of 25 percent? The current dividend is $5.45(D0) and the dividends are expected to grow 8 percent per year for 4 years. At the end of 4 years, the investor expects to sell the security for $50.

Question 14 options:

	$44.60
	$20.48
	$32.77
	$35.81

Answer 1

B14 fx Current Share Price = 35.81 [ Option D is the correct answer] А B F G 1 2 Years 3 4 Dividend Discount Rate @25% Present Value 1 5.886 0.8 4.7088 2 6.35688 0.64 4.0684 3 6.86543 0.512 3.5151 4 7.414665 0.4096 3.0370 Present Value of Dividend 14.190 5 6 7 00 9 10 According to the Constant Dividend Growth Model, The Share price is the present value of all the dividensds that the shareholders will get over the lifetime. 11 12 13 Current Share Price = 50 - 14.19 Current Share Price = 35.81 [ Option D is the correct answer] 14 15 16 17

B14 X fx Current Share Price = 35.81 [ Option D is the correct answer] A B 1 2 Years 3 1 4 2 Dividend =5.45*(1+8%) =C3*(1+8%) =C4*(1+8%) =C5*(1+8%) Discount Rate @25% =1/(1+25%)^B3 =1/(1+25%)^B4 =1/(1+25%)^B5 =1/(1+25%)^B6 Present Value of Dividend Present Value =C3*D3 =C4*D4 =C5*D5 =C6*D6 14.19 5 3 6 4 7 8 9 10 According to the Constant Dividend Growth Model, The Share price is the present value of all the dividensds that the shareholders will get over the lifetime. 12 13 Current Share Price = 50 - 14.19 Current Share Price = 35.81 [ Option D is the correct answer] 14 15 16 17 18 19