7. Problem 9.17 Click here to read the eBook: Constant Growth Stocks CONSTANT GROWTH Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $3.50 yesterday. Bahnsen's dividend is expected to grow at 44 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 10% .. Find the expected dividend for each of the next 3 years; that is, calculate Di, D, and Dj. Nate that Do = $3.50. Round your answer to the nearest cent. D = D2 = b. Given that the first dividend payment will becur 1 year from now, find the present value of the dividend strearn; that is, calculate the PVS of D., Dy, and D, and then surn these PVs. Round your answer to the nearest cent. Do not round your intermediate calculations. S C. You expect the price of the stock 3 years from now to be $68.24; that is, you expect to equal $68.24. Discounted at a 10% rate, what is the present value of this expected future stock price? Round your answer to the nearest cent. Da not round your intermediate calculations. other words, calculate the PV of $68.24. S d. If you plan to buy the stack, hold it for 3 years, and then sell it for $68.24, what is the most you should pay for it today7 Round your answer to the nearest cent. Da not round your intermediate calculations. s Po c. Use equation below to calculate the present value af this stack D(0) 1). TS- TS- Assume that g = 4% and that it is constant. Do not found 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 boday, Po? I. 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 halding period. It is not cqual to the value calculated in part c. Any other holding period would produce a different value of Pu, II. 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. III. No. The value of the stock is not dependent upon the holding period unless the growth rate remains constant for the foreseeable future. IV. Yes. The value of the stock is dependent upon the holding period as long as the growth rate remains constant for the foreseeable future. V. 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 pcriod. It is cqual to the value calculated in part c. Any other holding period would produce the same value of F. -Select