Exercise 4-3 Please use the following information for questions 1-4 (be careful about rounding). Stock...
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Exercise 4-3 Please use the following information for questions 1-4 (be careful about rounding). Stock A pays a dividend of $3 per share next year. The constant growth rate of the dividend is 5% every year. The discount rate is 10%. 1. If you hold the stock for one year, what is the price for stock A you have to pay now (PO)? A) $60 B) $63 C) $30 D) $55 E) None of the above 2. If you hold the stock for two years, what is the price for stock A you have to pay now (PO)? A) $61 B) $62 C) $63 D) $55 E) None of the above 3. If you hold the stock for three years, what would be the price for stock A three years from now (P3)? A) $60 B) $63 C) $69 D) $55 E) None of the above 4. If you hold the stock for two years, what would be the price for stock A two years from now (P2)? A) $60 B) $63 C) $66 D) $55 E) None of the above Please use the following information for questions 5-8. Stock A pays an earnings of $5 per share in rate is 10%. year 1. The return on equity is 20%. The discount 5. If there is no plow-back, what is the stock price now (PO)? A) $40
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