Python Exercises for Corporate Finance and Risk Management

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Question: 16

Q: A stock will pay $4 dividend, starting from this year end. Thereafter, these dividends are expected to grow infinitely in future at a steady rate of 4%. If the discount rate is 14%, what is the appropriate value of these cash flow streams.

INSTRUCTIONS

Given: Cash flows(Dividend), Growth rate of dividends, Discount rate,

  • Define a function with the name "present_value" which will take three arguments, cashflow(dividend), growth rate of dividend, and discount rate.
  • The signature of the function should be like:

def present_value(dividend, discount_rate, growth_rate):

  • We will use the formula ,

Present values of the cash flows = Cash flows/(discount rate - growth rate)

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