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Stock XYZ has a current dividend of $6.00 . The dividend is expected to grow at 4.00% per year until year 3 and then at 3.00% per year for the rest of time. Based on the riskiness XYZ, its discount rate is 7.00% . With this information, what is the dividend yield from today to year 1?

(A) 7.00%
(B) 3.73%
(C) 4.00%
(D) 4.12%
(E) 3.93%
(F) 3.07%

Respuesta :

Karabo99

Answer:

(E) 3.93%

Explanation:

year                     cash flows                         pv @7%           present value

1                              $6.24                              0.934579            $5.83

2                             $6.49                               0.87344              $5.67

3                             $6.75                                0.81630              $5.51

Price at year 3        $173.79                             0.81630             $141.87

                      (6.75*1.03)/(0.07-0.03)            

price today                                                                                   $158.88

Devidend yield = 6.24/158.88

                          = 3.93%

Therefore. The dividend yield from today to year 1 is 3.93%

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