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Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.75 yesterday. Bahnsen's dividend is expected
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.75 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%.
1. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0 = $2.75. Do not round intermediate calculations. Round your answers 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. Do not round intermediate calculations. Round your answer to the nearest cent. $
- You expect the price of the stock 3 years from now to be $47.75; that is, you expect to equal $47.75. Discounted at a 12% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $47.75. Do not round intermediate calculations. Round your answer to the nearest cent. $
- If you plan to buy the stock, hold it for 3 years, and then sell it for $47.75, what is the most you should pay for it today? Do not round intermediate calculations. Round your answer to the nearest cent. $
- Use equation below to calculate the present value of this stock
- P0=Do(1+g)/rs-g =D1/rs-g Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
- Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today,
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