Fight Finance

Courses  Tags  Random  All  Recent  Scores

Scores
keithphw$6,001.61
Carolll$1,512.43
Zin$1,502.43
Visitor$1,268.61
Visitor$1,251.28
cuiting$1,229.70
Visitor$1,198.33
Jade$1,155.80
Skywalke...$1,070.00
mm11$1,050.33
ninalee$1,039.70
Yuan$1,033.33
Visitor$1,024.70
Visitor$996.00
Visitor$985.61
zy$949.70
victor$934.70
Emma Lu$930.00
Doris$889.70
Visitor$840.00
 

Question 355  DDM, stock pricing

Stocks in the United States usually pay quarterly dividends. For example, the retailer Wal-Mart Stores paid a $0.47 dividend every quarter over the 2013 calendar year and plans to pay a $0.48 dividend every quarter over the 2014 calendar year.

Using the dividend discount model and net present value techniques, calculate the stock price of Wal-Mart Stores assuming that:

  • The time now is the beginning of January 2014. The next dividend of $0.48 will be received in 3 months (end of March 2014), with another 3 quarterly payments of $0.48 after this (end of June, September and December 2014).
  • The quarterly dividend will increase by 2% every year, but each quarterly dividend over the year will be equal. So each quarterly dividend paid in 2015 will be $0.4896 (##=0.48×(1+0.02)^1##), with the first at the end of March 2015 and the last at the end of December 2015. In 2016 each quarterly dividend will be $0.499392 (##=0.48×(1+0.02)^2##), with the first at the end of March 2016 and the last at the end of December 2016, and so on forever.
  • The total required return on equity is 6% pa.
  • The required return and growth rate are given as effective annual rates.
  • All cash flows and rates are nominal. Inflation is 3% pa.
  • Dividend payment dates and ex-dividend dates are at the same time.
  • Remember that there are 4 quarters in a year and 3 months in a quarter.

What is the current stock price?




Copyright © 2014 Keith Woodward