Equity analyst expect dividends to grow at a constant rate

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Reference no: EM13950736

You have been asked to value a stock. Stock AAA is expected to pay a dividend of $2 next year (t=1) and $2.20 the year after (t=2). After the end of the second year, stock or equity analyst expect dividends to grow at a constant rate of 4.0% per year to perpetuity (forever). In addition, investors require an 8% rate of return when buying AAA stock. What should the price of the stock be today?

Reference no: EM13950736

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