FINA 361 Lecture 6: Step by step stock valuation with supernormal growth

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Fi(cid:374)d today"s p(cid:396)ice of a stock with supe(cid:396)(cid:374)o(cid:396)(cid:373)al g(cid:396)owth. When a stock has a period in which dividends grow at a rate faster than the required. Dividend growth rate between today and period 1 = (cid:2869)=(cid:883)(cid:888)% Dividend growth rate between period 1 and period 2 = (cid:2870)=(cid:883)(cid:883)% Dividend growth rate between period 2 and period 3 = (cid:2871)=(cid:890)% Dividend growth rate after the supernormal growth period = (cid:4666)(cid:3041)(cid:3042)(cid:3045)(cid:3040)(cid:3039)(cid:4667)=(cid:885)% Tock"s (cid:396)e(cid:395)ui(cid:396)ed (cid:396)ate of (cid:396)etu(cid:396)(cid:374) = (cid:3046)=(cid:887). (cid:889)(cid:886)% (1) Draw the time line with the number of periods until normal growth in dividends. Put in the dividend growth rates for each dividend. . (cid:2874)(cid:2872) (cid:4666)(cid:2869). (cid:2868)(cid:2873)(cid:2875)(cid:2872)(cid:4667)(cid:3119)=(cid:889)(cid:888). (cid:890)(cid:890) (cid:4666)(cid:2869). (cid:2868)(cid:2873)(cid:2875)(cid:2872)(cid:4667)(cid:3119)=. (cid:889)(cid:882)(cid:884)(cid:890) , (cid:2868)9. (cid:2869)(cid:2870) Apply gordon model to last dividend (cid:2871)= (cid:3120) (cid:4666)(cid:3294) (cid:3289)(cid:3290)(cid:3293)(cid:3288)(cid:3287)(cid:4667) =

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