- CFA Exams
- CFA Level I Exam
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**CFA Practice Question**

Franks Co. is currently paying a dividend of $2.20 per share. The dividends are expected to grow at 25% per year for the next four years and then 5% per year thereafter. Calculate the expected dividend in year 6.

B. $2.95

C. $5.92

A. $5.37

B. $2.95

C. $5.92

Correct Answer: C

2.2 x 1.25

^{4}x 1.05^{2}= 5.92###
**User Contributed Comments**
12

User |
Comment |
---|---|

haarlemmer |
Nothing wrong with the question. I just found the calculator is not the best choice. Maybe someday it could be adopted to a new one, I really find it is not handy to use. |

danlan |
year 6 and not year 5, 1.05^2 and not 1.05, |

gullan |
Dividend in year 6 means dividend at the end of year 6 as dividend is paid at the end of period |

sam95 |
Keep on multipying the dividend by the growth rate for each year.AS it keeps on changing .i.e either try the given answer or simply try 2.2 x1.25 x1.25 x1.25 x1.25 x1.05 x1.05 =5.92 |

capitalpirate |
what's wrong with using the calculator?? |

capitalpirate |
2.2 x 1.25^4 x 1.05^2 = 5.92 on TI, BAII, use 1.25 y^x 4 x 1.05 x^2... |

moneyguy |
2.20 * (1.25)^4 * (1.05)^2 = 5.9216 |

johntan1979 |
2.2 is Year 0 |

jonan203 |
HP12C: 2.2 <enter> 1.25 <enter> 4 <y^x><times> 1.05 <enter> 2 <y^x><times> = 5.9216 |

davcer |
save time, you just do the calculation 1.25exp*2.20 and get 5.37, since there are two periods left C is tne only possible answer |

tochiejehu |
D4[1.25]^[1.05]^2 |

kseeba17 |
Stop relying on the calculator, it barely saves any time and it doesn't help you understand the fundamentals better. Use a normal calculator... |