CONSTANT GROWTH

Your broker offers to sell you some shares of Bahnsen & Co$.$ common stock that paid a dividend of $$1\mathrm{.}25$ yesterday. Bahnsen's dividend is expected to grow at $5\%$ 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 $12\%.$

Find the expected dividend for each of the next $3$ years; that is$,$ calculate D$1,$ D$2,$ and D$3.$ Note that D$0=$ $$1\mathrm{.}25.$ Round your answer to the nearest cent.

D$1=$ $

D$2=$ $

D$3=$ $

Given that the first dividend payment will occur $1$ year from now, find the present value of the dividend stream; that is$,$ calculate the PVs of D$1,$ D$2,$ and D$3,$ and then sum these PVs$.$ Round your answer to the nearest cent. Do not round your intermediate calculations.

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You expect the price of the stock $3$ years from now to be $$21\mathrm{.}71$; that is$,$ you expect to equal $$21\mathrm{.}71.$ Discounted at a $12\%$ rate, what is the present value of this expected future stock price? In other words, calculate the PV of $$21\mathrm{.}71.$ Round your answer to the nearest cent. Do not round your intermediate calculations.

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If you plan to buy the stock, hold it for $3$ years, and then sell it for $$21\mathrm{.}71,$ what is the most you should pay for it today? Round your answer to the nearest cent. Do not round your intermediate calculations.

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Use equation below to calculate the present value of this stock.

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Assume that g $=5\%$ and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.

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Is the value of this stock dependent upon how long you plan to hold it$?$ In other words, if your planned holding period was $2$ years or $5$ years rather than $3$ years, would this affect the value of the stock today, $?$

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 value calculated in parts a through d is the value for a $3-$year holding period. It is equal to the value calculated in part e$.$ Any other holding period would produce the same value of $.$

Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a $3-$year holding period. It is not equal to the value calculated in part e$.$ Any other holding period would produce a different value of $.$

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 of all future expected dividends.

No$.$ The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.