00:01
Hi there.
00:01
So for this problem, first of all, to determine the stock price today, we will discount the future dividends to the present using the given interest rate of 5 % per year.
00:14
So the dividends for the first five years will be $10 per year.
00:19
The comes an annual dividend for year six onward will be $5 forever.
00:25
The discount rate will be 5 % per year.
00:29
So the first thing that we need to consider is the present value the first five years of dividends.
00:36
So the present value will be d, which is the 10 annual dividends for the first five years.
00:45
Then this times 1 minus 1 divided by 1 plus the rate elevated to the times t.
00:52
And then this divided by the rate.
00:55
Okay.
00:56
So then with that set, the step, the step.
00:59
Step 2 is to the present value of the perpetuity started at year's 5.
01:04
So the present value at infinity will be then just simply d divided by the rate...