What are the stock intrinsic value today

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Problem 1: An analyst is estimating the intrinsic value of the stock of Yipee Inc. The analyst estimates that the stock will pay a dividend of $1.75 a share at the end of the year (that is, D^ 1 = $1.75). The dividend is expected to remain at this level until 4 years from now (that is, D^ 2 = D^ 3 = D^ 4 = $1.75). After this time, the dividend is expected to grow forever at a constant rate of 6 percent a year (that is, D^ 5 = $1.855). The stock has a required rate of return of 15 percent. What are the stock's intrinsic value (stock price) today, i.e. P0, and two year later (stock price at t=2, i.e. P2)?

Reference no: EM132877376

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