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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...
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% per year. The stock's required rate of return is 12%.1. What is the current value of the stock and the expected stock price at the end of each of the next three years?D1= 2r= 12%g= 5%as, Po = D1/(r-g)Hence, Pnow = 2/(12%-5%) = 2 /0.07 = $28.57for P1, Dividend = 2*(1+0.05) = 2.1, therefore P1 = 2.1/0.07 = $30for P2, Dividend = 2.1*(1+0.05) = 2.205, therefore P1 = 2.205/0.07 = $31.5for P3, Dividend = 2.205*(1+0.05) = 2.31525, therefore P1 = 2.31525/0.07 = $33.075Please answer question 22. Go one more week (your starting dividend should be $30 and the week one dividend should be $31.50)
