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5 March, 05:33

Grandiose Growth has a dividend growth rate of 10%. The discount rate is 7%. The end-of-year dividend will be $1 per share. What is the present value of the dividend to be paid in year 1? Year 2? Year 3?

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  1. 5 March, 08:36
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    year 1 is 0.93

    Year 2 is 0.96

    Year 3 is 0.98

    Explanation:

    given data

    growth rate = 10%

    discount rate = 7%

    per share = $1

    to find out

    present value

    solution

    we will find present value dividend to be paid

    so for 1 year

    present value = per share / (1 + discount rate) ^1

    present value = 1 / (1 + 0.07) ^1

    present value = 0.93

    for year 2

    present value = per share (1 + growth rate) / (1 + discount rate) ²

    present value = 1 (1 + 0.10) / (1 + 0.07) ²

    present value = 0.96

    for year 3

    present value = per share (1 + growth rate) ² / (1 + discount rate) ³

    present value = 1 (1 + 0.10) ² / (1 + 0.07) ³

    present value = 0.98
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