Problem 9-17 Constant growth

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.75 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 D1, D2 and D3. Note that D0 = $3.75. Round your answer to the nearest cent. D1 = $ D2 = $ D3 = $ 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 D1, D2, and D3 and then sum these PVs. Round your answer to the nearest cent.

$ You expect the price of the stock 3 years from now to be $65.12; that is, you expect to equal $65.12. Discounted at a 12% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $65.12. Round your answer to the nearest cent.

$

If you plan to buy the stock, hold it for 3 years, and then sell it for $65.12, what is the most you should pay for it today? Round your answer to the nearest cent. $

Use equation below to calculate the present value of this stock. ?????? Assume that g = 5% and that it is constant. Round your answer to the nearest cent. $