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b. 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. Do not round intermediate calculations. Round your answer to the nearest cent. $ c. You expect the price of the stock 3 years from now to be $90.12; that is, you expect P3 to equal $90.12. Discounted at an 11% rate, what is the present value of this expected future stock price? other words, calculate the PV of $90.12. Do not round intermediate calculations. Round your answer to the nearest cent. $

b. 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. Do not round intermediate calculations. Round your answer to the nearest cent. $ c. You expect the price of the stock 3 years from now to be $90.12; that is, you expect P3 to equal $90.12. Discounted at an 11% rate, what is the present value of this expected future stock price? other words, calculate the PV of $90.12. Do not round intermediate calculations. Round your answer to the nearest cent. $

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.75 yesterday. Bahnsen's dividend is expected to grow at 7% 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%. a. Find the expected dividend for each of the next 3 years; that is, calculate D₁, D2, and D3. Note that Do = $2.75. Do not round intermediate calculations. Round your answers to the nearest cent. D1 = $ D2 = $ D3 = $ $ 2.94 3.15 3.37 b. 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. Do not round intermediate calculations. Round your answer to the nearest cent. $ ✔ ✔ M c. You expect the price of the stock 3 years from now to be $90.12; that is, you expect P3 to equal $90.12. Discounted at an 11% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $90.12. Do not round intermediate calculations. Round your answer to the nearest cent. $ d. If you plan to buy the stock, hold it for 3 years, and then sell it for $90.12, what is the most you should pay for it today? Do not round intermediate calculations. Round your answer to the nearest cent. = e. Use equation below to calculate the present value of this stock. Po = Do(1+8) D₁ rs-g rs-g Assume that g = 7% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent. $ X
Transcribed Image Text:Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.75 yesterday. Bahnsen's dividend is expected to grow at 7% 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%. a. Find the expected dividend for each of the next 3 years; that is, calculate D₁, D2, and D3. Note that Do = $2.75. Do not round intermediate calculations. Round your answers to the nearest cent. D1 = $ D2 = $ D3 = $ $ 2.94 3.15 3.37 b. 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. Do not round intermediate calculations. Round your answer to the nearest cent. $ ✔ ✔ M c. You expect the price of the stock 3 years from now to be $90.12; that is, you expect P3 to equal $90.12. Discounted at an 11% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $90.12. Do not round intermediate calculations. Round your answer to the nearest cent. $ d. If you plan to buy the stock, hold it for 3 years, and then sell it for $90.12, what is the most you should pay for it today? Do not round intermediate calculations. Round your answer to the nearest cent. = e. Use equation below to calculate the present value of this stock. Po = Do(1+8) D₁ rs-g rs-g Assume that g = 7% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent. $ X
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