Math Problem Statement

  1. Electric Violet stock is currently priced at $X. The stock’s next several dividends are expected to be $4.53 in 2 years, $5.68 in 4 years, and $6.44 in 5 years. After the dividend is paid in 5 years, the dividend is expected to be paid annually and increase by 2.40 percent per year forever. The stock has an expected return of 14.30 percent per year. What is X

Solution

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Math Problem Analysis

Mathematical Concepts

Finance
Present Value
Dividend Discount Model

Formulas

PV = D / (1 + r)^t
D_6 = D_5 * (1 + g)
PV = D_6 / (r - g)

Theorems

Dividend Discount Model (DDM)

Suitable Grade Level

Grades 11-12