Suppose that stockbrokers have projected that Jamestown Savings will pay a dividend of $2.50 per share on its common stock at the end of the year; a dividend of $3.25 per share is expected for the next year, and $4.00 per share in the following two years. The risk-adjusted cost of capital for banks in Jamestown’s risk class is 15 percent. If an investor holding Jamestown’s stock plans to hold that stock for only four years and hopes to sell it at a price of $50 per share, what should the value of the bank’s stock be in today’s market?

  • CreatedOctober 31, 2014
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