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Hello students, here is a question.
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Dulux company expects to pay a dividend of $1 .60 per share at the end of year 1, $2 per share at the end of year 2 and then to be sold for $26 ,000 per share at the end of year 2.
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If required the rate of return on the stock of 10 % what is the current value of a stock? so, let us solve this problem.
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First, we need to the formula will be pv is equal to d divided by r minus g.
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So, where pv is present value, d is a dividend, r is the required rate of return, g is the growth rate.
00:43
So, for year 1, d is 1 .60, g is 0 since the dividend has no expected growth.
00:51
So, therefore, pv1 will be 1 .60 divided by 0 .10 minus 0, the answer will be 16.
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For year 2, this is for year 1, for year 2, the d value is 2 and g is 0 .10.
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So, for pv2, it is 2 divided by 0 .10 minus 0 .10.
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So, the answer will be 20...