CFA CFA Level 1 Question of the Week – Equity

Question of the Week – Equity

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        The dividends each year are:

        D1 = 1.70 * 1.045 = 1.7765

        D2 = 1.70 * 1.045^2 = 1.8564

        D3 = 1.70 * 1.045^2 * 1.016 = 1.8861

         

        The terminal value at t = 2 is:

        V2 = 1.8861 / (0.085 – 0.016) = 27.3354

         

        The intrinsic value of the stock at t = 0 is:

        V0 = 1.7765 / 1.085 + 1.8564 / 1.085^2 + 27.3354 / 1.085^2 =
        26.43

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