Question
Your broker offers to sell you some shares of Lucky Co. common stock that paid a dividend of $1 yesterday. You expect the dividend to
Your broker offers to sell you some shares of Lucky Co. common stock that paid a dividend of $1 yesterday. You expect the dividend to grow at the rate of 2 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. Include a timeline in your answer.
a.Find the expected dividend for each of the next three years.
b.If the appropriate discount rate is 8 percent, find the present value of the dividend stream for the next three years.
c.Suppose you expect to sell your stock three years from now at $30, what is the present value of $30? Assume the discount rate is 8 percent.
d.Find the most price you should pay for this stock at present given the above information.
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