Exhibit 11.7
Use the Information Below for the Following Problem(S)
Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to grow at a rate of 9% per year for the next three years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.
-Refer to Exhibit 11.7.The price of the stock today (P?)is
A) $84.81
B) $87.81
C) $91.09
D) $94.32
E) $97.61

Question

Quizplus · Accepted Answer

$\text { P0 }=\mathrm{PV} \text { of dividends yr } 1 \text { to } \mathrm{yr} 5+\mathrm{PV} \text { of } \mathrm{P} 3$
$$= 4.67 + 101.85 / ( 1.07 ) ^ { 3 } = \$ 87.81$$

Exhibit 11.7 Use the Information Below for the Following Problem(S)