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Suppose XYZ Associates is your authorized broker in the XYZ Stock Exchange. They offered to sell you some shares of XYZ Corporation common stock that paid a dividend of Rs.2 per share yesterday.

Question: 01

You expect the dividend to grow at the rate of 5% per year on these shares for the next four years, and, if you plan to hold it for four years and then sell it.

Find the expected dividend for each of the next four years.

Given that the appropriate discount rate is 12% and that the first of these

dividend payments will occur one year from now, find the present value of the dividend stream.

(Marks: 02 + 02)

Question: 02

If you plan to buy the stock, hold it for four years, and then sell it for Rs.34.75 per share, what is the most you should pay for one share of this stock. Suppose your required rate of return is 12% p.a, and the dividend growth rate is 5%.

(Marks: 03)

Question: 03

Using Constant Growth Dividend Model of common stock pricing, Calculate present value of this stock, if dividend growth rate is 5%, and required rate of return is 10%.

(Marks: 03)