MATH SOLVE

9 months ago

Q:
# What is the projected dividend in one year's time, for a stock worth $20 today with a dividend expected to grow at a rate of 5%, with a required rate of return of 10%.

Accepted Solution

A:

To find the projected dividend in 1 year:
Let's call the dividend this year D
With 5% growth, the dividend next year will be D * 1.05
Using the required rate of return formula:
Stock price = D / (Required rate of return - Growth rate)
$20 = D / (0.10 - 0.05)
$20 = D / 0.05
D = $1
Therefore, the dividend this year is $1
With 5% growth, the projected dividend in 1 year is $1 * 1.05 = $1.05
Therefore, the projected dividend in one year's time is $1.05