You and your brother are planning to buy shares in a manufacturing company. The shares have...

You and your brother are planning to buy shares in a manufacturing company. The shares have just paid a dividend of $2 per share. This annual dividend is expected to grow at a constant rate of 3% p.a. forever.

Your brother intends to hold the shares indefinitely, but you intend to sell them in two years. You both have the same required rate of return of 12% p.a.

Would you be prepared to pay more than your brother for the shares, or less than your brother, or would you pay the same price? Explain.

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jeff jeffy answered 1 year ago

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