Ch 09: End-of-Chapter Problems - HOMEWORK Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.00 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 10%. a. Find the expected dividend for each of the next 3 years, that is calculate Ds. Da, and Ds. Note that Do = $3.00. Do not round intermediate calculations. Round your answers to the nearest cent. D-5 D=5 Dy = 5 b. Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is calculate the Ps of D, D2, and Ox, and then sum these PVs. Do not round Intermediate calculations. Round your answer to the nearest cent You expect the price of the stock 3 years from now to be $94.69 that is, you expect Ps to equal $94,69. Discounted at a 10% rata, what is the present value of this expected future stock price? In other words, calculate the PV of $94,69. Do not round intermediate calculations, Round your answer to the nearest cont. d. If you plan to buy the stock, hold it for 3 years, and then sell it for $94.69, what is the most you should pay for it today? Do not round intermediate calculations. Round your answer to the nearest cent. 5 . Use equation below to calculate the present value of this stock Po D Assume that = 6% and that it is constant. Do not round Intermediate calculations. Round your answer to the nearestent $ t. In the value of this stock dependent upon how long you plan to hold it? in other words, if your planned holding period was won or 5 years other than a years, would this affect the value of the stock today, Po 1. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts through dia the value for a year holding penod. It is not to the value calculated in parte. Any other holding period would produce a different value of Po TL Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value atture expected dividends TIL No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future IV. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future No. The value of the stock is not dependent upon the holding period. The valve called in parts around in the for a year his periods to the value calculated in parte. Any other holding period would reduce the same value of
