Carleton Corporation has just paid a dividend of $1.25. Dividends are expected to grow at 15% for years 1-3, 30% for years 4-6, 10% for years 7-8, and 4% thereafter. The required return is 16 percent. (i) What should the stock sell for today? (ii) What is the expected price eight years from today? (8 marks) (2 marks) (iii) If you decide to hold the stock for two year, at what price can you sell the stock? (3 marks) (iv) If you buy the stock now and sell it two years later, what will be your rate of return? (2 marks)
Carleton Corporation has just paid a dividend of $1.25. Dividends are expected to grow at 15% for years 1-3, 30% for years 4-6, 10% for years 7-8, and 4% thereafter. The required return is 16 percent. (i) What should the stock sell for today? (ii) What is the expected price eight years from today? (8 marks) (2 marks) (iii) If you decide to hold the stock for two year, at what price can you sell the stock? (3 marks) (iv) If you buy the stock now and sell it two years later, what will be your rate of return? (2 marks)
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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Transcribed Image Text:Carleton Corporation has just paid a dividend of $1.25. Dividends are expected to
grow at 15% for years 1-3, 30% for years 4-6, 10% for years 7-8, and 4% thereafter.
The required return is 16 percent.
(i) What should the stock sell for today?
(ii) What is the expected price eight years from today?
(8 marks)
(2 marks)
(iii) If you decide to hold the stock for two year, at what price can you sell the stock?
(3 marks)
(iv) If you buy the stock now and sell it two years later, what will be your rate of
return? (2 marks)
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