Question

In: Finance

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 yesterday. Bahnsen's dividend is expected to grow at 8% 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 = $3.25. Round your answer to the nearest cent.

    D1 = $
    D2 = $
    D3 = $
  2. 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. Round your answer to the nearest cent. Do not round your intermediate calculations.
    $
  3. You expect the price of the stock 3 years from now to be $110.54; that is, you expect  to equal $110.54. Discounted at a 12% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $110.54. Round your answer to the nearest cent. Do not round your intermediate calculations.
    $
  4. If you plan to buy the stock, hold it for 3 years, and then sell it for $110.54, what is the most you should pay for it today? Round your answer to the nearest cent. Do not round your intermediate calculations.
    $
  5. Use equation below to calculate the present value of this stock.
              
    Assume that g = 8% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
    $
  6. 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.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 4% 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 11%. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 yesterday. Bahnsen's dividend is expected to grow at 8% 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 13%. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 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 9%. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that D0...
Your broker offers to see you some shares of Bahnsen & Co. common stock that paid...
Your broker offers to see you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 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%. a. Find the expected dividend for each of the next 3 years, that is, calculate D1, D2, and D3. Note that...
CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock...
CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 6% 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%. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note...
CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock...
CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $1.25 yesterday. Bahnsen's dividend is expected to grow at 4% 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...
Your broker offers to sell you some shares of FFC a common stock that paid a...
Your broker offers to sell you some shares of FFC a common stock that paid a dividend of Rs. 2 yesterday. FFC dividend is expected to grow at 5% per year for the next 3 years, and, if you buy the stock, you planned to hold it for 3 years and then sell it. The appropriate discount rate is 12 percent. a. Find the expected dividend for each of the next 3 years; that is, calculate D₁, D₂, and D₃....
Section 1 (25 marks) a. The broker offers to sell you some shares of ABC &...
Section 1 a. The broker offers to sell you some shares of ABC & Co. common stock that paid annual dividend of $2.00 yesterday. ABC’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%. i. Calculate the expected dividend for each of the next 3 years. [3 marks] ii. Given that the...
5. A broker offers to sell you shares of Bay Area Healthcare, which just paid a...
5. A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The stock's price is $30 a share. The dividend is expected to grow at a constant rate of 5% per year. The stock's required rate of return is 12%. What is the expected total return yield (this is the expected dividend yield + expected capital gains yield) for each of the next three years? Choice: 8% Choice: 10% C...
On January 1, you tell your broker to sell short 500 shares of Apple Inc. stock...
On January 1, you tell your broker to sell short 500 shares of Apple Inc. stock at a price of $200 per share. You use $70,000cash to serve as a margin. (a)How high can the stock price go before you get a margin call if the maintenance margin is 50%? (b)Assume that on April 1, a dividend of $5 per share was paid. On May 1, you covered the short sale by buying the stock at a price of $150...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT