Question

River City Recycling just paid its annual dividend of $1.15 per share. The required return is 12.3 percent and the dividend growth rate is 0.75 percent. What is the expected value of this stock five years from now

Answer 1

Answer:

10.34

Explanation:

This question refers to Dividend Growth Rate with respect to Stock valuation

The model estimates the dividends over a defined period based on an assumed growth rate to determine the future value of the stock.

The formular to calculating the expected value is as follows

$\frac{Dividend Amount(1+Rate)^{Years} }{Expected Return - Rate}$

Please note:

Expected return and Rate are expressed in percentage i.e divided by 100.

Fitting into the formular:

$\frac{1.15(1+0.0075)^{5} }{0.123 - 0.0075}$

The resulting answer = 10.34