Klaus toys just paid its annual dividend of $1.40. the required return is 16 percent and the dividend growth rate is 2 percent. what is the expected value of this stock five years from now?

Question

Alexus Myers

Business

21 February, 21:15

Klaus toys just paid its annual dividend of $1.40. the required return is 16 percent and the dividend growth rate is 2 percent. what is the expected value of this stock five years from now?

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Francesca Boyd · Answer 1

The expected value (EV) is a probable value for a given investment. By calculating expected values, investors can decide the scenario most likely to give them their preferred result.

Formula for expected value is:

Expected value = stock return’s annual dividend divided by (required return - dividend growth rate)

P₅ = [$1.40 * (1 + 0.02) ₆ ] / (0.16 - 0.02) = $11.26

The answer is $11.26