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Your bank offers to sell you some shares of Best Buy common stock that just paid a dividend of $2. You expect the dividend to
Your bank offers to sell you some shares of Best Buy common stock that just paid a dividend of $2. You expect the dividend to grow at the rate of 5 percent per year for the next 3 years, and, if you buy the stock, you plan to hold it for 3 years and then sell it. Assume the required rate of return as 20%.
a. Find the expected dividend for each of the next 3 years; that is, find D1, D2, D3.
b. If you plan to buy the stock, hold it for 3 years, and then sell it for $34.73, what is the most you should pay for it?
c. Calculate the present value of this stockassume g = 5% and is constant
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