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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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Suppose Acap Corporation will pay a dividend of $2.72 per share at the end of this year and $2.92 per share next year. You expect Acap's stock price be $52.61 in two years. Assume that Acap's equity cost of capital is 10.1%. a. What price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for two years? b. Suppose, instead, you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in part b, what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this price compare to your answer in part a?
Transcribed Image Text:Suppose Acap Corporation will pay a dividend of $2.72 per share at the end of this year and $2.92 per share next year. You expect Acap's stock price be $52.61 in two years. Assume that Acap's equity cost of capital is 10.1%. a. What price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for two years? b. Suppose, instead, you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in part b, what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this price compare to your answer in part a?
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