Answer:
a. $50.75
b. $52.38
c.$50.75
The answer in part c compares to a in that it has the same exact value as what was obtained in part a
Explanation:
In this question, we are asked to calculate some share prices for Acap corporation given the data in the question. We proceed as follows;
a) dividend next year, D1 = $2.73
dividend at the end of 2nd year, D2 = $3.06
expected price in 2 years, P2 = $53.83
cost of capital , r = 8.6%= 0.086
P0( price willing to pay today) = [D1/(1+r)] + [ D2/(1+r)^2 ] + [P2/(1+r)^2] = [2.73/(1.086)] + [ 3.06/(1.086)^2 ] + [53.83/(1.086)^2] = $50.75
b) expected selling price in 1 year =Price in year 1 = (D2+P2)/(1+r)^1= (3.06+53.83)/(1.086) = $52.38
c) if investment period is 1 year
Price willing to pay today , P0 = (D1+P1)/(1+r) = (2.73+52.38)/(1.086) = $50.75
Answer:
Explanation:
Year 1: Dividend, D1 = $2.73
Year 2: Dividend, D2 = $3.06
Year 2: Stock Price, P2 = $53.83
Cost of Capital, r = 8.6% = 0.086
(a.)
let Current Price = Po = D1/(1 + r)² + D2/(1 + r)² + P2/(1 + r)²
[tex]P0 = \frac{2.73}{1.086^{2} } + \frac{3.06}{1.086^{2} } + \frac{53.83}{1.086^{2} }[/tex]
Current Price, Po = $50.75
(b.)
let Year 1 stock price = P1 = D2/(1 + r) + P2/(1 + r)
[tex]P1 = \frac{3.06}{1.086} + \frac{53.83}{1.086}[/tex]
Stock Price Year 1, P1 = $52.38
(c.)
price am Willing to pay, Po = D1/(1 + r) + P1/(1 + r)
[tex]P0 = \frac{2.73}{1.086} + \frac{52.38}{1.086}[/tex]
Current Price, P0 = $50.75
The part c is almost the same as part a answer
