1) Using the Generalized Dividend Pricing Model, solve for the present value of a stock that pays $4 in dividends per year and you can expect to sell…

1)     Using the Generalized Dividend Pricing Model, solve for the present value of a stock that pays $4 in dividends per year and you can expect to sell for $40 at any time in the future. You have an internal interest rate of 7%

a.      What is the present value if you plan to hold the stock for one year?

b.      What is the present value if you plan to hold the stock for 3 years?

c.      What is the present value if you plan to hold the stock for 5 years?

2)     Using the Gordon Growth Model, solve for the present value of each type of stock. Your internal rate of return is 10%.

a.      $3 annual dividends that grow at 4% per year

b.      $2 annual dividends that grow at 5% per year

c.      $1 annual dividends that grow at 6% per year

 
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