please answer all questions 2. A stock just paid a dividend of $3 and dividends
ID: 2780662 • Letter: P
Question
please answer all questions
2. A stock just paid a dividend of $3 and dividends are expected to grow at 5% per year forever. If the required return is 11%, what is the fair price of the stock?
3. A stock will pay a dividend of $2 next year, $2.50 in2 years and $3 in 4 years. You expect that you could sell the stock for $75 at that time. If you have a required return of 10% for this stock, what is the fair value? If the price of the stock is $65, should you buy it?
NIKE, Inc. (NKE) NYSE-Nasdaq Real Time Price Currency in USD Add to watchlist 55.20 +0.13 (+0.24%) As of 3:39PM EDT. Market open Summary Chart Conversations Statistics Profile Previous Close Open Bid 90.06B 0.50 23.50 2.35 55.07 Market Cap 55.15 Beta 55.26 x 700 PE Ratio (TTM) 55.27 x 2100 EPS (TTM) 4.60-55.32 Eanings Date Ask Dec 18,2017 Day's Range 52 Week Range49.31-60.53 Volume Avg. Volume Dec 22, 2017 Forward Dividend 0.72 (1.29%) Ex-Dividend Date 2017-08-31 59.00 & Yield ,787,017 9,772,487 y Target EstExplanation / Answer
1.
what is the value of the stock=(0.72+59)/(1+7%)=55.81
yes buy the stock now as it is selling at less than its value of 55.81
2.
what is the fair price of the stock=(3*1.05)/(11%-5%)=52.50
3.
what is the fair value=2/1.10^1+2.50/1.10^2+3/1.10^4+75/1.10^4=57.16
as value is lower than price of 65, do not buy
the above are the answers
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