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Basic Question 3 of 16
What would Jackie pay for a stock that is expected to pay a $1.50 dividend in one year if the expected dividend growth rate is 3% and she requires a 16% return on her investment? Jackie would pay ______.
B. $12.43
C. $11.54
D. $14.30
E. $12.33
A. $13.14
B. $12.43
C. $11.54
D. $14.30
E. $12.33
User Contributed Comments 10
| User | Comment |
|---|---|
| Rajain | Why C 1.5/(0.16-0.03) = 11.5384 |
| cfahanoi | Expected devidend = D1 => V = 1.5/(.16-.03) = 11.54 |
| rfvo | Remember expected dividend, so no need to multiply growth. Current dividend multiply by growth rate. |
| fmhp | Thank you rfvo: good hint! |
| moneyguy | tricky one. |
| Jamberto | wouldn't it be: (D*1+G)/(R-G) = (1.50*1.03)/(.16-.03) = 11.88 ??? |
| jonan203 | jamberto: no, 1.5 is the future dividend that has NOT been paid, which implies that the previous dividend was 1.45. [1.45(1.03)] / (.16 - .03) = 11.54 |
| tochiejehu | D1 =Expected dividend=1.50 and apply d constant growth model |
| Inaganti6 | hahaha this is tricky ? |
| MathLoser | No, it is not. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2025 Level I Curriculum, Volume 3, Module 8.