Klaus toys just paid its annual dividend of $1.40. the required return is 16 percent and the dividend growth rate is 2 percent. what is the expected value of this stock five years from now?

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AliyaDorsey1923 AliyaDorsey1923

22-06-2017
Business

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Klaus toys just paid its annual dividend of $1.40. the required return is 16 percent and the dividend growth rate is 2 percent. what is the expected value of this stock five years from now?

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meerkat18 meerkat18 · Answer 1 · 2017-07-04T12:19:56+02:00

meerkat18 meerkat18

04-07-2017

The expected value (EV) is a probable value for a given investment. By calculating expected values, investors can decide the scenario most likely to give them their preferred result.

Formula for expected value is:

Expected value = stock return’s annual dividend divided by (required return – dividend growth rate)

P₅= [$1.40×(1 + 0.02)₆]/(0.16 - 0.02) = $11.26

The answer is $11.26

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