In the constant perpetual growth model, the dividend a stock will pay in five years is:

Question

Quizplus · Accepted Answer

According to the constant perpetual growth model: PV = DS1 / (1 + k)^1 + DS1(1 + g) / (1 + k)^2 + DS1(1 + g)^2 / (1 + k)^3 + ... To find the dividend a stock will pay in five years (DS5), we need to look at the fifth term in the formula above: DS5(1 + g)^4 / (1 + k)^5 = DS5 / (1 + k)^5 * (1 + g)^4 Rearranging the formula gives: DS5 = PV * (1 + k)^5 / (1 + g)^4 Substituting the given information: DS5 = DS1 / (1 + k)^1 * (1 + k)^5 / (1 + g)^4 DS5 = DS1 * (1 + k)^4 / (1 + g)^4 Therefore, the answer is C: D₀ (1 + g)⁵.

In the Constant Perpetual Growth Model, the Dividend a Stock