Suppose that real dividends are expected to grow at the constant rate g^e. If the actual real dividend for period t is Dt , the expected real dividend for future period n will then be given by:
D_n ^e =Dt(1+g^e)n−t for n=t+1,t+2,... (4)

(a) Use Eq. (6) in the text to demonstrate that, when expected future dividends are given by (4), the value of shares will be given by:
Vt = Dt/(r+ε−g^e)

Question

Suppose that real dividends are expected to grow at the constant rate g^e. If the actual real dividend for period t is Dt , the expected real dividend for future period n will then be given by:
D_n ^e =Dt(1+g^e)n−t for n=t+1,t+2,... (4)

(a) Use Eq. (6) in the text to demonstrate that, when expected future dividends are given by (4), the value of shares will be given by:
Vt = Dt/(r+ε−g^e)

anonymous · Answer

Equation 6 in the text is Vt = Dt^e/(1+r+ε) + Dt+1^e/(1+r+ε)^2 + Dt+2^e/(1+r+ε)^3...