Your broker offers to sell you some shares of Bahsen and Co. common stock that paid you a dividend of $2 yesterday (D0). You expect the dividend to grow at a rate of 5% per year for the next three years and if you buy the stock you plan to hold it for 3 years and then sell it.

a) Find the expected dividend for each of the next three years. 1 marks

b) Given that the appropriate discount rate is 12% and that the first of these dividend payments will occur 1 year from now. Find the present value of the dividend stream. 1 marks

c) You expect the price of the stock 3 years from now to be $ 34.73 that is you expect P3 to equal $34.73 discounted at a 12% rate. What is the present value of this expected future stock price? 2 marks

d) If you plan to but the stock and hold it for three years and then sell it for $34.73 what is the most you should pay for it today?2 marks

e) Calculate the present value of the stock assuming that g=5% and it is constant. 2 marks