Safeco is expected to pay a dividend of $1.00 next year and $1.85 in the following...

Safeco is expected to pay a dividend of $1.00 next year and $1.85 in the following year, and $2.25 in the following year. Analysts believe that Safeco will hit their price target of $92.50 in three years. What is the value of Safeco stock if your required return is 10.25 percent?

Expert Solution

Calculation of stock's current price:
Year	Particulars	Amount	PVF @10.25%	Present value
1	Dividend	1.00	0.907	0.91
2	Dividend	1.85	0.823	1.52
3	Dividend+price	94.75	0.746	70.70
Total				73.13

So value of stock is $73.13

Wrking: Year 3= dividend + price= 2.25+92.50=$94.75

jeff jeffy answered 2 years ago

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