Suppose the current dividend for a stock is $0.42 and is expected to grow 20% annually for the next three years and then 6% annually for the foreseeable future. What will the dividend be four years from today?

Question

Quizplus · Accepted Answer

The dividend grows 20% annually for the first three years, so we calculate the growth as follows: Year 1: $0.42 * 1.20 = $0.504 Year 2: $0.504 * 1.20 = $0.6048 Year 3: $0.6048 * 1.20 = $0.72576 Then, it grows 6% for the next year (fourth year), so: Year 4: $0.72576 * 1.06 = $0.7693056, which rounds to $0.77.

Suppose the Current Dividend for a Stock Is $0