FIN 300 Lecture 9: Chapter 8

• School: Ryerson University
• Department: Finance
• Course: FIN 300
• Professor: Patricia Mc Graw

Document Summary

If you buy a share of stock, you can receive cash in two ways: the company pays dividends, you sell your shares, either to another investor in the market or back to the company. As with bonds, the price of the stock is the present value of these expected cash flows. Constant dividend: the firm will pay a constant dividend forever, this is like proffered stock, the price s computed using perpetuity formula. Constant dividend growth: the firm will increase the dividend by a constant percent every period. Supernormal growth: dividend growth is not consistent initially, but settles down to constant growth eventually. If dividends are expected at regular intervals forever, then this is like preferred stock and is valued as a perpetuity. Dividends are expected to grow at a constant percent per period. dividend in one year, expected to grown 5% per year and return 20: p=2(1+0. 05)/0. 15.