Huawei is growing steadily, and investors expect both the stock price and the dividend to increase at 8% per year. Three investors Ahmed, Badar and Khalid are interested to invest in Huawei's shares. Ahmed plans to hold Huawei's shares for 1 year, carns dividend for the year and sell the shares. Badar plans to hold shares for 2 years and then sell them off and Khalid plans to hold shares for 3 years and then sell them off.

Required: Calculate and compare the price cach wants to pay for Huawei's shares. Remember that dividends and stock prices for Huawei are expected to grow at a steady rate of 6%. The initial dividend is $3 and each investor requires the same 12% expected return.

Answer rating: 100% (QA)

To determine the price each investor is willing to pay for Huaweis shares we can use the Dividend Di... View the full answer