Price of the stock according to the dividend discount model

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Reference no: EM131023228

1. A stock is expected to pay a dividend of $3 at the end of one year. After that dividends are expected to grow at the rate of 2% per year forever. The required return on the stock is 15%. What's the price of the stock according to the dividend discount model?

2. You believe IBM will pay dividends of $1.50 and $2.50 for the next two years. From year two onwards, dividends will grow at a rate of 7%. If the appropriate discount rate is 15%, what is a fair price for IBM?

3. Assume that a share of stock will pay dividends of $2 in one year, $3 in two years, and $3.50 in three years. For all years after year 3, dividends will grow at a rate of 5%. If shareholders’ required rate of return is 15%, what is the appropriate price per share?

Reference no: EM131023228

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