Question: Explain each question(a, b, c, d), Please Q) Your broker offers to sell you some shares of Van-Kam common stock that paid a dividend of

Explain each question(a, b, c, d), Please

Q) Your broker offers to sell you some shares of Van-Kam common stock that paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5 percent per year for the next 3 years, and, if you buy the stock, you plan to hold it for 3 years and then sell it. (5 points)

a. Find the expected dividend for each of the next 3 years; that is, find D1, D2, D3. Note D0 = $2.00.

b. Given that the appropriate discount rate is 12 percent and that the first of these dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PV of D1, D2, D3 and then sum these PVs

c. If you plan to buy the stock, hold it for 3 years, and then sell it for $34.73, what is the most you should pay for it?

d. Calculate the present value of this stockassume g = 5% and is constant

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