Question

Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.52, $1.58, and $1.60 a share over the next three years, respectively. After that, the dividend will be constant at $1.65 per share per year. What is the market price of this stock if the market rate of return is 12 percent?

Answer 1

Answer:

Market price of the stock  = $13.54

Explanation:

given data

annual dividend D = $1.47

planning on paying P1 = $1.52

planning on paying P2 = $1.58

planning on paying P3 = $1.60

constant dividend D1 = $1.65

market rate of return r = 12 percent

to find out

market price of this stock

solution

we get here Market price of the stock  that is express as

Market price of the stock  = PV(Dividends) + PV(Horizon Value)

Market price of the stock  = $\frac{P1}{(1+0.12)} +\frac{P2}{(1+0.12)^2} +\frac{P3}{(1+0.12)^3} +\frac{D1}{(1+0.12)^3(0.12)}$   ................1

put here value we get

Market price of the stock  = $\frac{1.52}{(1+0.12)} +\frac{1.58}{(1+0.12)^2} +\frac{1.60}{(1+0.12)^3} +\frac{1.65}{(1+0.12)^3(0.12)}$

Market price of the stock  = $13.5425