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Imagine adding up infinite number of dividends

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Reference no: EM131540047

The following graph shows the value of a stock's dividends over time. The stock's current dividend is

$1.00 per share, and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the present value (PV) of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends.

Calculate the present value (PV) of the dividend paid today (D0) and the discounted value of the dividends expected to be paid 10 and 20 years from now. Assume that the stock's required return (rs) is 8.40%.

Now - Expected Dividend's Present Value - $10.0000, $0.0000, $1.0000, $20.0000

End of Year 10 - Dividend's Expected Future Value - $1.0832, $1.2050, $1.3053, $1.2710 - Expected Dividend's Present Value - $.6150, $.6851, $.5827, $.7633

End of Year 20 - Dividend's Expected Future Value - $1.6590, $1.4913, $1.7038, $1.7498 - Expected Dividend's Present Value - $.3216, $.3395, $.4448, $.2887

End of Year 30 - Dividend's Expected Future Value - $4.1043, $3.7890, $4.3289, $3.4979  Expected Dividend's Present Value - $.0513, $.0790, $.0709, $.0672

Reference no: EM131540047

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