By DDM, the current stock price is the PV of all its (perpetual) future dividends; How...

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By DDM, the current stock price is the PV of all its (perpetual) future dividends; How about the PV of (non-perpetual) cashflows D₁, D2, D3 + P3 if you hold the stock for only three years and sell it at the end of year 3. This exercise will compare the two methods of discounting. Do you think they will compute different current stock prices? IBM just paid an annual dividend of $3 per share. The dividend is expected to grow by 3% per year. The required rate of return is 12%. Part 1 By DDM/Gordon growth model, what is the price to sell the stock in 3 years? 1+ decimals BAttempt 1/10 for 10 pts. Submit Part 2 If you buy the stock today, hold it, sell it in 3 years at the price computed in Part 1, what is the present value of all cashflows (D1, D2, D3, P3) you receive? 1+ decimals Submit Part 3 By Gordon growth model, what is the current stock price? How does your answer here compare to Part 2, what's your finding/insight? 1+ decimals Attempt 1/10 for 10 pts. Submit Attempt 1/10 for 10 pts. By DDM, the current stock price is the PV of all its (perpetual) future dividends; How about the PV of (non-perpetual) cashflows D₁, D2, D3 + P3 if you hold the stock for only three years and sell it at the end of year 3. This exercise will compare the two methods of discounting. Do you think they will compute different current stock prices? IBM just paid an annual dividend of $3 per share. The dividend is expected to grow by 3% per year. The required rate of return is 12%. Part 1 By DDM/Gordon growth model, what is the price to sell the stock in 3 years? 1+ decimals BAttempt 1/10 for 10 pts. Submit Part 2 If you buy the stock today, hold it, sell it in 3 years at the price computed in Part 1, what is the present value of all cashflows (D1, D2, D3, P3) you receive? 1+ decimals Submit Part 3 By Gordon growth model, what is the current stock price? How does your answer here compare to Part 2, what's your finding/insight? 1+ decimals Attempt 1/10 for 10 pts. Submit Attempt 1/10 for 10 pts.

Answer rating: 100% (QA)

Based on the information provided we have the following details Dividend just paid D0 300 per share Dividend growth rate g 3 per year Required rate of ... View the full answer