Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of...
Question:
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $4.00 yesterday. Bahnsen's dividend is expected to grow at 4% 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%.
A. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3.
B. Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PVs of D1, D2, and D3 and then sum these PVs.
Dividend discount model:
A dividend is a payment made to the shareholders of a company as a reward for their investment. The Dividend Discount Model (DDM) is part of the approaches employed in stock valuation to compute the company's stock price. DDM is built on the assertion that the current price of a stock equals the present value of expected future dividends. The dividends can portray zero, growth, constant growth, or multi-stage growth and the growth rate is an important component when pricing the stock.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerD0 = $4.00
g = 4%
n = 3 years
r = 11%
Question A
Calculate D1
{eq}\begin{align*} \ D1 & = D0 * (1 + g )\\ & = 4 * (1 + 0.04 )\\ & =...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Stock Valuation Overview, Methods & Formula
from
Chapter 4 / Lesson 5
33K
In this lesson, learn what stock valuation is and what the commonly used stock valuation methods are. See the different stock valuation models and their formulas.
Related to this Question
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 4% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then se
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.75 yesterday. Bahnsen's dividend is expected to grow at 8% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then se
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 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 s
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 yesterday. Bahnsen's dividend is expected to grow at 8% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then se
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 8% per year for the next 3 years, and, if you buy the stock, you plan to hold it for 3 years and th
- 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
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.25 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.50 yesterday. Bahnsen's dividend is expected to grow at 8% per year for the next 3 years. If you buy
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 5% per year for the next 3 years. If you buy
- Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $1.75 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy
- Your broker offers to sell you some shares of Bahnsen & Co common stock that paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, and if yo
- Your broker offers to sell you some shares of ARP Co. common stock that paid a dividend of 50 cents this past year. You expect the firm to grow at the rate of 3.75% per year. a. Find D1. b. What is the most you should pay for the common stock of ARP if th
- Constant growth - Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.75 yesterday. Bahnsen's dividend is expected to grow at 5% per year for the next 3
- A firm just paid a $2.50 dividend. Its dividends are expected to grow at a constant rate of 5.50% per year, and the common stock currently sells for $52.50 a share. The firm's 4% coupon bonds are currently selling for $918 with 5 years remaining until mat
- A share of stock is now selling for $130. It will pay a dividend of $5 per share at the end of the year. Its beat is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- Your broker offers to sell you shares of Wingler & Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5 percent per year into perpetuity. If the
- Your broker offers to sell you some shares of Wingler & Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5 percent per year into perpetuity. Th
- Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could be sold for
- Woidtke Manufacturing's stock currently sells for 17 a share. The stock just paid a dividend of 1.50 a share D0 1.50, and the dividend is expected to grow forever at a constant rate of 3% a year. What
- The earnings, dividends, and stock prices are expected to grow at 7% per year in the future. Common stock sells for $23 per share its last dividend was $2.00 and the company will pay a dividend of $2.14 at the end of the current year. Using the discounted
- Suppose that Brown-Murphies common shares sell for $22.00 per share, that the firm is expected to set their next annual dividend at $0.67 per share, and that all future dividends are expected to grow
- You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 15% for the next 3 years, resulting in dividends of D1=$2.3,
- Stock A is expected to pay the following dividends per share over the next four years, respectively: $0.00, $2.30, 2.60, and $2.90. If you expect to be able to sell the stock for $95.83 in four years
- A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The dividend is expected to grow at a constant rate of 5 percent per year. The stock's required
- Your broker offers to sell you some shares of Wingler & Company common stock, which paid a dividend of $2 yesterday. You expect the dividend to grow at a rate of 5 percent per year into perpetuity. Gi
- Stock Valuation Finite Periods: The Ohm Company paid a $2.50 dividend per share at the end of the year. The dividend is expected to grow by 10 percent each year for the next 3 years, and the stock s market price per share is expected to be $50 at the end
- A stock just paid a dividend of $0.40 per share. The dividend is expected to grow by 12% per year for 4 years, then grow at 3% per year thereafter. If the expected return on the stock is 13.3% per yea
- DCF Summerdahl Resorts' common stock is currently trading at $38 a share. The stock is expected to pay a dividend of $2.75 a share at the end of the year, and the dividend is expected to grow at a con
- Steady As She Goes, lnc., will pay a year-end dividend of $2.50 per share. Investors expect the dividend to grow at a rate of 4 percent indefinitely. a. If the stock currently sells for $25 per share
- Thress Industries just paid a dividend of $2.50 a share (i.e., D0 = 2.50). The dividend is expected to grow 9% a year for the next 3 years and then at 12% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your
- You buy into a high-dividend yielding stock and buy 400 shares for $8000. You sell 100 shares in less than a year at $2200, and sell the other 300 shares for $6150 after 1 year. During the time you owned the stock you received $400 in dividends. Taking in
- Suppose an investor is planning to buy a stock currently priced in the market at $200 and expected to pay an annual dividends of $20 in each of the next three years and to sell for $100 at end of the third year. Assuming the investor can reinvest her divi
- The next expected annual dividend for Sun, Inc., will be $1.20 per share, and analysts expect the dividend to grow at an annual rate of 7% indefinitely. If Sun stock currently sells for $22 per share
- Suppose that Brown-Murphies common shares sell for $23.50 per share, that the firm is expected to set its next annual dividend at $0.73 per share, and that all future dividends are expected to grow by 5 percent per year, indefinitely. Assume Brown-Murphie
- You own a stock that pays annual dividends. The dividend paid one year from today will be $18, and subsequent dividends will grow by 4% per year, forever. Suppose you sell the stock four years from today, directly after receiving that year's dividend. Fin
- Firm K's shares sell today for $45. It is forecast that the share price will be $51 at the end of one year. Also at that time, a dividend of $2.50 is expected to be paid. Firm K's \beta is 0.87, th
- The common stock of NCP paid $3 dividend last year. Dividends of the company are expected to grow at a 5% annual rate indefinitely. Assume that the stock is currently selling for $40 and that your req
- The common stock for the Hetterbrand Corporation sells for $60.23, and the last dividend paid was $2.35. five-years ago the firm paid $1.88 per share and dividends are expected to grow at the same annual rate in the future as they did over the past five y
- Thress Industries just paid a dividend of $3 a share. The dividend is expected to grow 8% a year for the next 3 years and then 12% a year thereafter. What is the expected dividend per share for each of the next 5 years?
- Cerner's stock has a required return of 12, and the stock sells for 40 per share. The firm just paid a dividend of 1.00, and the dividend is expected to grow by 30 per year for the next 4 years, so D
- An issue of common stock currently sells for $50 per share and expected to pay $4 dividend per share at the end of the year. If the expected rate of return on this stock is 14%, what is the expected dividend growth rate?
- A broker offers to sell you shares of Bay Area health care, which just paid a dividend of $2 per share. The dividend is expected to grow at a constant rate of 5% per year. The stocks required rate of
- A share of stock is now selling for $100. It will pay a dividend of $9 per share at the end of year 1. Its beta is 1.0. What do investors expect the stock to sell for at the end of the year if expecte
- A share of stock is now selling for $150. It will pay a dividend of $5 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- A share of stock is now selling for $120. It will pay a dividend of $10 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume t
- A share of stock is now selling for $125. It will pay a dividend of $8 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- A share of stock is now selling for $100. It will pay a dividend of $9 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- A share of stock is now selling for $130. It will pay a dividend of $6 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- A share of stock is now selling for $95. It will pay a dividend of $5 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the
- A share of stock is now selling for $155. It will pay a dividend of $6 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- A share of stock is now selling for $130.It will pay a dividend of $6 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the
- Can Corp. just paid a dividend of $1.50/share. The dividend is expected to grow 9% a year for the next 3 years and then at 4% a year thereafter. What is the expected dividend per share that is expecte
- DCF Summerdahl Resorts' common stock is currently trading at $34 a share. The stock is expected to pay a dividend of $2.25 a share at the end of the year (D1=$2.25), and the dividend is expected to gr
- You are considering the purchase of common stock that paid a dividend of $1 yesterday. You expect this stock to have a growth rate of 20% for the next 3 years, resulting in dividends of D1 = $1.20, D2 = $1.44, and D3 = $1.73. The long-run normal growth ra
- The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 5% per year in the future. Carpetto's common stock currently sells for $45.50 per share. Carpetto just paid a dividend of $3.20, and it will pay its next
- You are considering buying the shares of a company that will pay the following dividends at the end of each year for the next 5 years and then you expect to sell the stock at $50 per share at the end
- DCF Summerdahl Resorts' common stock is currently trading at $27.00 per share. The stock is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00), and the dividend is expecte
- Thress Industries just paid a dividend of $1.40 a share. The dividend is expected to grow 5.30% a year for the next 3 years and then 11.90% a year thereafter. What is the expected dividend per share f
- The Auto Company just paid a dividend of $3.00 and analysts expect the dividend to grow at its compound average growth rate of 10.72% forever. You plan to purchase the stock then hold it for 10 years.
- A stock is not expected to pay a dividend over the next four years. Five years from now, the company anticipates that it will establish a dividend of $1.00 per share (i.e., D5 = $1.00). Once the dividend is established, the market expects that the dividen
- Exalted Co. will pay a dividend of $2.25 per share at the end of year 1, and dividends per share are expected to grow at a rate of 10% per year in perpetuity. The return on equity is 12.8%. a. Calcul
- A broker is considering buying a dividend paying stock. The dividend will be paid at the end of the year. The analyst consensus is the stock will worth $36 in one year. The company pays a $2.25 annual
- Weisbro and Sons' common stock sells for $19 per share and pays an annual dividend that increases by 6% annually. The market rate of return on this stock is 11%. What is the amount of the last dividend paid by Weisbro and Sons?
- Weisbro and Sons' common stock sells for $26 per share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 10%. What is the amount of the last dividend paid by Weisbro and Sons?
- Weisbro and Sons' common stock sells for $50 per share and pays an annual dividend that increases by 5.3% annually. The market rate of return on this stock is 9.30%. What is the amount of the last dividend paid by Weisbro and Sons?
- The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at th
- You buy a stock for $30 per share and sell it for $33 after holding it for slightly over a year and collecting a $0.75 per share dividend. Your ordinary income tax rate is 28% and your capital gains t
- Javics & Sons' common stock currently trades at $38.00 a share. It is expected to pay an annual dividend of $1.50 a share at the end of the year (D1= $1.50), and the constant growth rate is 3% a year.
- A stock is not expected to pay a dividend over the next four years. Five years from now, the company anticipates that it will establish a dividend of $1.00 per share (i.e., D_5 = $1.00). Once the dividend is established, the market expects that the divide
- Woidtke Manufacturing's stock a firm sells for $23.00 a share. A stock just paid a dividend of $3.00 a share (i.e. D0 = $1.00), and the dividend is expected to grow forever at a constant rate of 10% a
- You are considering the purchase of a common stock that just paid a dividend of $2. You expect this stock to have a growth rate of 30 percent for the next 3 years, resulting in dividends of D1 = $2.60, D2 = $3.38, and D3 = $4.39. The long-run normal growt
- A stock pays a dividend of $0.60 the first year, $0.80 the second year, and $0.90 the third year. The dividend is then expected to grow at a constant rate of 7 %, forever. The discount rate is 16%. Currently, the stock selling for $10.00. Should the inves
- Suppose that stockbrokers have projected that Poquoson Bank and Trust Company will pay a dividend of $3 per share on its common stock at the end of the year; a dividend of $4.50 per share is expected for the next year and $6 per share in the following yea
- Suppose a stock just paid a dividend of $1.50 per share. The dividend per share is expected to grow at a rate of 18% next year and 20% the following year. Beyond year 2, the dividend will grow at a co
- A share of common stock has an expected long-run constant dividend growth rate of 9%, and the expected dividend to be paid at the end of the year is $4.50. The required rate on the common stock is 18%. If the common stock is selling for $50/share then acc
- You are thinking of purchasing a stock that is currently priced at $120 per share. It pays an annual dividend of $5.00 per share. 1. Assume that you buy the stock on margin paying $80 per share and borrowing the rest from your broker at 8.0% annual inter
- A company recently paid out a $2 per share dividend on their stock. Dividends are projected to grow at a constant rate of 4% into the future, and the required return on investment is 6%. After one year, the holding period return to an investor who buys th
- Steady As She Goes, Inc., will pay a year-end dividend of $2.80 per share. Investors expect the dividend to grow at a rate of 4% indefinitely. a. If the stock currently sells for $28 per share, what
- A firm has common stock with a market price of $100 per share and an expected dividend of $5.61 per share at the end of the coming year. A new issue of stock is expected to be sold for $98, with $2 p
- The common stock of Rose's Flowers pays an annual dividend that is expected to increase by 1.5% per year. The stock commands a market rate of return of 10.7% and sells for $15.90 a share. What is the expected amount of the next dividend?
- The common stock of Rose's Flowers pays an annual dividend that is expected to increase by 3.6% per year. The stock commands a market rate of return of 11.6% and sells for $37.80 a share. What is the expected amount of the next dividend?
- A share of stock is now selling for $140. It will pay a dividend of $7 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume th
- Summerdahl's common stock is currently trading at $36 per share. The stock is expected to pay a dividend of $3.00 per share at the end of the year and the dividend is expected to grow at a constant ra
- The common stock of NCP paid $4 dividend last year. Dividends of the company are expected to grow at a 5 percent annual rate indefinitely. Assume that the stock is currently selling for $40 and that y
- A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $5 per share (D1 = $5), and it is expected to grow at some constant rate g throughout time. The stock's requir
- A stock is trading at $60 per share. The stock is expected to have a year-end dividend of $3 per share (D1 = $3), and it is expected to grow at some constant rate g throughout time. The stock's requir
- A stock is trading at $65 per share. The stock is expected to have a year-end dividend of $5 per share (D1 = $5), and it is expected to grow at some constant rate g throughout time. The stock's requir
- A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2), and it is expected to grow at some constant rate g throughout time. The stock's requir
- Today a stock does not pay dividends. You expect it to start paying dividends in two years from today, and you expect that the first annual dividend in two years from now will be $2 per share. From that point, you expect the growth rate of the dividend to
- Helluva stock currently pays a dividend of $1.20 per share.Dividends are expected to increase at the rate of $0.10 per share for the next eight years.Determine the current value of Helluva common stock to an investor who expects to be able to sell the sto
- The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow by 8% per year. Carpetto's common stock currently sells for $25.00 per share; its last dividend was $2.00, and it will pay a $2.16 dividend at the en
- The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow by 8% per year. Carpetto's common stock currently sells for $25.00 per share; its last dividend was $2.00, and it will pay a $2.16 dividend at the
- The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow by 8% per year. Carpetto's common stock currently sells for $25.00 per share; its last dividend was $2.00, and it will pay a $2.16 dividend at th
- The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 11% per year. Carpetto's common stock currently sells for $23.00 per share; its last dividend was $2.00; and it will pay a $2.14 dividend at the end
- The future earnings, dividends, and common stock price of Core-Tech Inc are expected to grow 6 per year. Core-Tech's common stock currently sells for 21 per share. It's last dividend was 2, and it wil
- DIFFERENTIAL GROWTH A common stock just paid a dividend of $2. The dividend is expected to grow at 8% for 3 years, then it will grow at 4% in perpetuity. What is the stock worth? The discount rate is
- Woidtke Manufacturing's stock currently sells for $33 a share. The stock just paid a dividend of $3.50 a share (i.e., D0 = $3.50), and the dividend is expected to grow forever at a constant rate of 6%
- Woidtke Manufacturing's stock currently sells for $22 a share. The stock just paid a dividend of $1.20 a share (i.e., D0 = $1.20), and the dividend is expected to grow forever at a constant rate of 10
- Woidtke Manufacturing's stock currently sells for $32 a share. The stock just paid a dividend of $2.25 a share (i.e., D0 = $2.25), and the dividend is expected to grow forever at a constant rate of 3%
- Woidtke Manufacturing' stock currently sells for $21 a share. The stock just paid a dividend of $1.75 a share (i.e., D0 = $1.75), and the dividend is expected to grow forever at a constant rate of 8%
Explore our homework questions and answers library
Browse
by subject