Finance Assignment | Professional Writing
May 27th, 2020
The common stockholders of Telstra Corporation Limited have just received a dividend of $0.31 per share. Due to Telstra Corporation Limited’s relatively low beta, investors currently require a rate of return equal to 8% on common stock investments of this perceived risk level.
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- Assuming the market expects dividends of Telstra Corporation Limited to grow at a constant rate of 4% into perpetuity, what is the maximum price you would be willing to pay for this stock today?
- If you now believe the current dividend of $0.31 is expected to grow at an annual rate of 7% for each of the following 3 years and 4% per year thereafter, what is the maximum price you would be willing to pay for this stock today?
- Briefly explain reasons as to why the valuation of common stocks is more difficult than the valuation of fixed income securities such as bonds and preferred stocks.
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