Your broker offers to sell you some shares of Bahnsen Co common stock that paid a dividend of $2 50 yesterday Bahnsen's dividend is expected to grow at 7 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 10 Find the expected dividend for each of the next 3 years that is, calculate D 1 , D 2 , and D 3 Note that D 0 $2 50 Do not round intermediate calculations Round your answers to the nearest cent D 1 $ D 2 $ D 3 $ 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 D 1 , D 2 , and D 3 , 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 $109 23 that is, you expect to equal $109 23 Discounted at a 10 rate, what is the present value of this expected future stock price In other words, calculate the PV of $109 23 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 $109 23, 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 Assume that g 7 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, No The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future Yes The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future No The value of the stock is not dependent upon the holding period The value calculated in parts a through d is the value for a 3 year holding period It is equal to the value calculated in part e Any other holding period would produce the same value of Yes The value of the stock is dependent upon the holding period The value calculated in parts a through d is the value for a 3 year holding period It is not equal to the value calculated in part e Any other holding period would produce a different value of Yes The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends Select IIIIIIIVV

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 03, 2024

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.50 yesterday. Bahnsen's dividend is expected

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.50 yesterday. Bahnsen's dividend is expected to grow at 7% 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 10%.

Find the expected dividend for each of the next 3 years; that is, calculate D₁, D₂, and D₃. Note that D₀ = $2.50. 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 $109.23; that is, you expect to equal $109.23. Discounted at a 10% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $109.23. 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 $109.23, 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. Assume that g = 7% 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,
1. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
2. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
3. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would produce the same value of .
4. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would produce a different value of .
5. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
-Select-IIIIIIIVV