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9. OPI, Inc., is offering its common stock to the public for the first time ever. You believe that each share of OPI's common stock will pay a $2.50 per share dividend semiannually for the next ten years. After the tenth year, you expect the semiannual dividends will grow at an APR of 3%, compounded semiannually, forever. 1/2 1-1/2 9-1/2 10 10-1/2 11 $2.500 $2.500 $2.500 $2.500 $2.500 $2.500 $2.50 x $2.50 x etc. 1.015 101542 Required: a. At what price would you expect OPI's stock to sell at the end of the tenth year if the market required an annual rate of return (APR) of 13%, compounded semiannually, at that time? b. What would you offer to pay for one share of OPI's common stock today (time zero) if you required an APR of 20%, compounded semiannually? c. Suppose that after ten years the market required a semiannual rate of return on OPI's come stock of 6%, but agreed with the dividend forecasts depicted above. At what price would a share of OPI's stock sell at the end of the tenth year? d. What rate of return, expressed as an APR, would you earn if you purchased a share of OPI's stock at t = 0 for the price you determined in part b, collected all of the expected dividends and then sold the share at the end of the tenth year for the price determined in part cStep by Step Solution
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