Suppose that you are considering the purchase of a stock expected to pay a $3 dividend next year. Market analysts expect the firm to grow at 4%indefinately. You are uncertain about both the constancy of the dividend stream and the accuracy of the estimated growth rate. To compensate yourself for this uncertain risk you require a 15% return. Now consider Fred another investor has consulted with industry insiders and feels more confident of the projected cash flows and requires only a 12%return. Another investor Susan is dating the Vice President of the company and she knows with more certainty what the future of the firm is and requires only a 10% return. Determine what are the values each investor will give to the stock? Show all calculations

Answer rating: 100% (QA)

To determine the value each investor will give to the stock we can use the divid... View the full answer