Homework Answers
Price of Stock is equal to the present value of all future dividends
= 2.25/(1.12) + 2.25(1.08)/(1.12)2 + 2.25(1.08)2/(1.12)3 + 2.25(1.08)3/(1.12)4+ 2.25(1.08)4/(1.12)5+ 2.25(1.08)4(1.03)/(1.12)5(12%-3%)
= $29.23
Since the price of stock ($55) is much higher than the value of stock ($29.23), this does noe represent a buying opportunity. The stock should not be bought
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