Question
Huawei is growing steadily, and investors expect both the stock price and the dividend to increase at 8% per year. Three investors Ahmed, Badar and
Huawei is growing steadily, and investors expect both the stock price and the dividend to increase at 8% per year. Three investors Ahmed, Badar and Khalid are interested to invest in Huawei's shares. Ahmed plans to hold Huawei's shares for 1 year, carns dividend for the year and sell the shares. Badar plans to hold shares for 2 years and then sell them off and Khalid plans to hold shares for 3 years and then sell them off.
Required: Calculate and compare the price cach wants to pay for Huawei's shares. Remember that dividends and stock prices for Huawei are expected to grow at a steady rate of 6%. The initial dividend is $3 and each investor requires the same 12% expected return.
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