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A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The dividend is expected to
| A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per | ||||||||
| share. The dividend is expected to grow at a constant rate of 5 percent per year. The stock's | ||||||||
| required rate of return is 12 percent. | ||||||||
| a. What is the expected dollar dividend over the next three years? | ||||||||
| b. What is the current value of the stock and the expected stock price at the end of each of the next | ||||||||
| three years? | ||||||||
| c. What is the expected dividend yield and capital gains yield for each of the next three years? | ||||||||
| d. What is the expected total return for each of the next three years? How does the expected total | ||||||||
| return compare with the required rate of return on the stock? Does this make sense? Explain. | ||||||||
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