Fin 2030 Quantitative Assignment Week 3

1. Stock:As per the dividend discount model, Value of stock, Po = D1/(r-g)So, when it is zero-growth rate, the formula takes the form: P0 =D/ra)2/.08 =b)3 (1+.01)/(9% - 1%) ==>c)Here, $4 dividend is yet to be paid, so D1 = $44/(10% - 2%) ==>Note: D0 is just paid dividend and D1 is yet to be paid.d)Again, $5 dividend is yet to be paid, so D1 = $55/(11% - 3%) ==>Formula:2. Stock:As per the dividend discount model, r = [D1/P0] + gwhere: r = required returnP0 = Current stock priceg = growth rateD1 = expected dividend (or) yet to be paid[1.5/19] + .07 ==>[1.75/25] + .08 ==>[2/26] + .09 ==>[2.25/33] + .10 ==>3. Stock:As per the dividend discount model, g = r - [D1/P0]a) .15 - [2.50/30.60] ==>b) .12 - [2/25.35] ==>c) .11 - [3/10.40] ==>d) .14 - [1.77/50.20] ==>4.Stock price:Formula for multiple (or) variable growth rate:Value of stock, P0 = [Sum of present values of dividends in initial growthperiod + Present value of stock at the end of initial growth period]Step 1: To find the sum of present values of initial dividendsYearPV factorat 6%DividendsPV ofdividendsSum of PV of dividends =Note: Here, PV factor at 6% has been calculated as 1/(1+.06)^1