Question $1$

Suppose you invested stock $ $850,$ Dividend $68(850$ x $8\%).$ You intend to hold the stock

for three years. You project you will be able to sell it at the end of year $4$ for $$920$ and

required rate of return $9\mathrm{.}15\%$

What is Present Value?

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Question $2$ : See PPT slide $14$ for this calculation

What is the price in year $3$

Formula : P$3=$ D$3/(1+$ g$)/($R $$ g$)$

Suppose a company start to pay dividends for the next three year. After the third yea,

the dividend will grow at a constant rate of $4\%$ per year. The required return is $8\%.$

Year Expected Dividend

$12$

$22\mathrm{.}5$

$33\mathrm{.}2$

$1]$ What is Value of the dividends that will be paid between now and then. So the price

in three year is$.$

P$3=$ D$3/(1+$ g$)/($R $$ g$)$

$2]$ What is the total value of stock as the present value of the first three dividends plus

the PV of the price at Time $3,$ P$3$

Po $=$ D$1/(1+$ R$)1+$ D$2/(1+$ R$)2+$ D$3/(1+$ R$)3+$ P$3/(1+$ R$)3$

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