Question 6 Vincent Nguyen, an analyst, is examining the stock of British Airways (London Stock Exchange: BAY) as of the beginning of 2008. He notices that the consensus forecast by analysts is that...

Question 6

Vincent Nguyen, an analyst, is examining the stock of British Airways (London Stock Exchange: BAY) as of the beginning of 2008. He notices that the consensus forecast by analysts is that the stock will pay a ￡4 dividend per share in 2009 (based on 21 analysts) and a ￡5 dividend in 2010 (based on 10 analysts). Nguyen expects the price of the stock at the end of 2010 to be ￡250. He has estimated that the required rate of return on the stock is 11 percent. Assume all dividends are paid at the end of the year.

Required:

1. a) Using the DDM, estimate the value of BAY stock at the end of 2009.


2. b) Using the DDM, estimate the value of BAY stock at the end of 2008.