You are analyzing Black Hills Jewlery (BHJ) stock for a possible purchase. BHJ just paid a dividend of $1.50 yesterday. You expect the dividend to grow at the rate of 6% per year for the next 3 years; if you buy the stock, you plan to hold it for 3 years and then sell it. (12 points)

a. D1 =D0*(1+g) =1.50*(1+6%) =1.59 D2 =D0*(1+g)^2 =1.50*(1+6%)^2 =1.6854 D3 =D0*(1+g)^3 =1.50*(1+6%)^3 =1.7865 b. PV of Dividend =D1/(1+r)+D2/(1+r)^2+D3/(1+r)^3 =1.59/(1+13%)+1.6854/(1+13%)^2+1.7865/(1+13%)^3 =3.97 c. PV of Future stock price =FV/(1+r)^n =27.05/(1+13%)^3 =18.75 d. The most you pay of the stock today =PV of Dividend+PV of Future stock price =1.59/(1+13%)+1.6854/(1+13%)^2+1.7865/(1+13%)^3+27.05/(1+13%)^3 =22.71

Use the constant growth model to calculate the present value of this stock. Assume that g = 6% and is constant.

f. Is the value of this stock dependent on how long you plan to hold it? In other words, if you planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today? Explain your answer.