e. Use equation below to calculate the present value of this stock.Do(1+g)DPo =Is-8rs-8Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.f. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, Po?I. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.II. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.III. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period wouldproduce the same value of Po .IV. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period wouldproduce a different value of Po.V. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.-Select- v eBookYour 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 the stock, you plan to hold it for3 years and then sell it. The appropriate discount rate is 11%.

As per the dividend growth model An investor in equity shares buys the shares at fixed fair price.…

e. Use equation below to calculate the present value of this stock. Po= Do(1+e) - D Assume that g - 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.

e. Use equation below to calculate the present value of this stock. Po= Do(1+e) - D Assume that g - 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter7: Stocks (equity) - Characterstics And Valuation

Section: Chapter Questions

Problem 6PROB

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

Question

e. Use equation below to calculate the present value of this stock.
Do(1+g)
D
Po =
Is-8
rs-8
Assume that g = 5% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent.
f. Is the value of this stock dependent upon how long you plan to hold it? In other words, if your planned holding period was 2 years or 5 years rather than 3 years, would this affect the value of the stock today, Po?
I. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future.
II. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future.
III. No. The value of the stock is not dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is equal to the value calculated in part e. Any other holding period would
produce the same value of Po .
IV. Yes. The value of the stock is dependent upon the holding period. The value calculated in parts a through d is the value for a 3-year holding period. It is not equal to the value calculated in part e. Any other holding period would
produce a different value of Po.
V. Yes. The value of the stock is dependent upon the holding period due to the fact that the value is determined as the present value of all future expected dividends.
-Select- v

eBook
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 the stock, you plan to hold it for
3 years and then sell it. The appropriate discount rate is 11%.

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