Ask Question
BusinessBusiness
13 April, 04:54

You want to invest in a stock that pays $4.00 annual cash dividends for the next three years. At the end of the three years, you will sell the stock for $35.00. If you want to earn 9% on this investment, what is a fair price for this stock if you buy it today?

+3
Answers (1)
  1. 13 April, 05:31
    0
    Po = D1/1+ke + D2 / (1+ke) 2 + D3+P3 / (1+ke) 3

    Po = 4/1+0.09 + 4 / (1+0.09) 2 + 4+35 / (1+0.09) 3

    Po = 4/1.09 + 4 / (1.09) 2 + 39 / (1+0.09) 3

    Po = 3.6697 + 3.6667 + 30.1158

    Po = $37.45

    Explanation:

    The fair price is a function of future dividends capitalised at the appropriate cost of equity of the firm. Moreso, the market price of year 3 is added to the dividend in year 3 before discounting.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You want to invest in a stock that pays $4.00 annual cash dividends for the next three years. At the end of the three years, you will sell ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Ron just started working for a car wash company two weeks ago. Ron's team members come back from breaks late, and do not worry too much about the best quality job.
Answers (1)
List 3 advantages of Social Media for businesses
Answers (1)
Suppose the U. S. Treasury offers to sell you a bond for $687.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000.
Answers (1)
From a management perspective do you think target made any major mistakes explain
Answers (1)
In your own words briefly state why a financial plan is important.
Answers (1)
New Questions in Business
Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has four years to maturity, whereas Bond Dave has 19 years to maturity. a.
Answers (1)
What role have public speeches served in ancient societies?
Answers (2)
What is the total annual value of goods and services produced in a country called? A. Gross Domestic Product B. Gross National Product C. Personal Disposable Income D. Gross National Income
Answers (1)
Marketing ethics refers to the moral or ethical dilemmas that might arise in a business setting, according to various moral and ethical principles that might arise in a business setting, and any special duties or obligations that apply to persons
Answers (1)
n a semantic priming task, A. presenting one word interferes with identifying a related word in a lexical decision task. B. presenting one word makes it easier to identify a related word in a lexical decision task. C.
Answers (1)
Home » Business » You want to invest in a stock that pays $4.00 annual cash dividends for the next three years. At the end of the three years, you will sell the stock for $35.00.
Sign Up Forgot Password?