e. Use equation below to calculate the present value of this stock. Po= Do(1+e) - D Assume that g - 5% and that it is constant. 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+e) - D Assume that g - 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
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
Related questions
Question
![e. Use equation below to calculate the present value of this stock.
Do(1+g)
D
Po =
Is-8
rs-8
Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
f. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, Po?
I. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
II. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
III. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would
produce the same value of Po .
IV. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would
produce a different value of Po.
V. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
-Select- v](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F28e2909e-59ae-4572-aed3-07960c54a16c%2F37f8fe9f-ee25-4bfa-a838-ed5f148ac44f%2F5vssrg6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:e. Use equation below to calculate the present value of this stock.
Do(1+g)
D
Po =
Is-8
rs-8
Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
f. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, Po?
I. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
II. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
III. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would
produce the same value of Po .
IV. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would
produce a different value of Po.
V. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
-Select- v
![eBook
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.00 yesterday. Bahnsen's dividend is expected to grow at 5% 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%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F28e2909e-59ae-4572-aed3-07960c54a16c%2F37f8fe9f-ee25-4bfa-a838-ed5f148ac44f%2F1gzdmg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:eBook
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.00 yesterday. Bahnsen's dividend is expected to grow at 5% 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%.
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