Jack owns 1,000 shares of ABC company stock. He expects to receive a total of $3...

Jack owns 1,000 shares of ABC company stock. He expects to receive a total of $3 in dividend/share next year (D1) with a growth rate of 4% a year in dividend. The market discount rate (r) is 10%. (Note: Round up answers in 2 decimal points) (a) If Jack wants to sell the stock at the end of year 5, what is the price he can sell (P5)? (b) What is the intrinsic value of the stock [E(P0)] if Jack plans to sell the stock at year 5? (Use CFs & P5 to calculate) (c) What is the intrinsic value of the stock [E(P0)] if Jack plans to sell the stock at year 5? (Use DDM constant formula to calculate) (d) What should Jack do if the market price (P0) is now selling at $40? Why? (e) What is the rate of return (%) of Jack if he buys the stock at [E(P0)] in (b) and sells it at P0 (price in (d))?

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jeff jeffy answered 2 years ago

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