Stock Values. Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4 percent per year.

a. What is the expected dividend in each of the next 3 years?

b. If the discount rate for the stock is 12 percent, at what price will the stock sell?

c. What is the expected stock price 3 years from now?

d. If you buy the stock and plan to hold it for 3 years, what payments will you receive? What
is the present value of those payments? Compare your answer to (b).

Stock Values. Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4 percent per year.

a. What is the expected dividend in each of the next 3 years?

b. If the discount rate for the stock is 12 percent, at what price will the stock sell?

c. What is the expected stock price 3 years from now?

d. If you buy the stock and plan to hold it for 3 years, what payments will you receive? What
is the present value of those payments? Compare your answer to (b).

$3.00, $1.00, $4.00, $3.00

Stock Values. Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the
dividend to grow steadily at a rate of 4 percent per year. Year1 Year2 Year 3
a. What is the expected dividend in each of the next 3 years? D1= D0(1+g) 1.040 1.082 1.125

b. If the discount rate for the stock is 12 percent, at what price will the stock sell? 13.00

P0= D1/(ke-g)

c. What is the expected stock price 3 years from now? P3=P0(1+g)^3 14.62

d. If you buy the stock and plan to hold it for 3 years, what payments will you receive?
What is the present value of those payments? Compare your answer to (b).

PMT YR1 0.93
PMT YR2 0.86
PMT YR3 11.21

PV of PMTs 13.00
This value is same as compared to b

For part d, it's actually:
PMT YR1 = 1
PMT YR2 = .86
PMT YR3 = 11.14