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Problem I App Soft Inc. just paid a dividend of $3.00/share. App Soft has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 20% per year for the next ten years (i.e., the growth rate applies only to the next ten dividend payments). After that, the dividend is expected to decrease at 2% per year for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for App Soft stock. a) What is App Soft's stock price today? b) What is App Soft's stock price in three years from now (right after the dividend payment)? c) What is App Soft's stock price in twenty years from now (right after the dividend payment)?

Problem I App Soft Inc. just paid a dividend of $3.00/share. App Soft has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 20% per year for the next ten years (i.e., the growth rate applies only to the next ten dividend payments). After that, the dividend is expected to decrease at 2% per year for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for App Soft stock. a) What is App Soft's stock price today? b) What is App Soft's stock price in three years from now (right after the dividend payment)? c) What is App Soft's stock price in twenty years from now (right after the dividend payment)?

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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Problem 1 App Soft Inc. just paid a dividend of $3.00/share. App Soft has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 20% per year for the next ten years (i.e., the growth rate applies only to the next ten dividend payments). After that, the dividend is expected to decrease at 2% per year for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for App Soft stock. a) What is App Soft's stock price today? b) What is App Soft's stock price in three years from now (right after the dividend payment)? c) What is App Soft's stock price in twenty years from now (right after the dividend payment)?
Transcribed Image Text:Problem 1 App Soft Inc. just paid a dividend of $3.00/share. App Soft has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 20% per year for the next ten years (i.e., the growth rate applies only to the next ten dividend payments). After that, the dividend is expected to decrease at 2% per year for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for App Soft stock. a) What is App Soft's stock price today? b) What is App Soft's stock price in three years from now (right after the dividend payment)? c) What is App Soft's stock price in twenty years from now (right after the dividend payment)?
Problem 1) b) What is App Soft s stock price in three years from now (right after the dividend payment)? Select one: $133.0 $97.7 $114.0 $147.5 $130.0 $108.4 $118.2 No solution; first growth rate is greater than r cross out cross out cross out cross out cross out cross out cross out cross out
Transcribed Image Text:Problem 1) b) What is App Soft s stock price in three years from now (right after the dividend payment)? Select one: $133.0 $97.7 $114.0 $147.5 $130.0 $108.4 $118.2 No solution; first growth rate is greater than r cross out cross out cross out cross out cross out cross out cross out cross out
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