Constant-Growth Dividend Discount Model Assignment | Homework For You
January 29th, 2020
For this problem, assume a risk-free rate of 3.0% and the excess return of the market to be 5.8%. MBI, a large and mature company, has a beta of 1.1 and pays out $6.30 in dividend per year. Use the constant-growth dividend discount model (DDM).
• If the stock is currently trading at $120 per share, what must be the market’s expectation of the dividend growth rate?
• The dividend forecasts for MBI are revised downward to 2%. Calculate the new share price.
• Qualitatively, what will happened to the company’s price-earnings ratio? Explain. Get Finance homework help today