Question
Suppose that the stock of Company X is currently quoted on the stock exchange as follows: bid price 60, ask price 61 per share. Suppose
Suppose that the stock of Company X is currently quoted on the stock exchange as follows: bid price 60, ask price 61 per share. Suppose that there are no commission fees on transactions. This company is expected to pay a dividend of 2 per share exactly in a year and a dividend of 3 per share exactly in two years from now. Suppose that you expect the bid price of this companys stock to be 67 exactly in two years from now, and the ask price of this companys stock to be 68 exactly in two years from now.
Using the Dividend Discount Model, estimate the present value of this companys stock and justify whether you would or wouldnt invest in this stock if your required rate of (annual) return on this type of stock is 12% ?
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