Question

Over the past 10 years, the dividends of Party Time Inc. have grown at an annual rate of 15 percent. The current (D0) dividend is $3.8 per share. This dividend is expected to grow to $4.3 next year, then grow at an annual rate of 10 percent for the following 2 years and 6 percent per year thereafter. You require a 15 percent rate of return on this stock. Use Table II to answer the questions. Do not round intermediate calculations. Round your answers to the nearest cent.

What would you be willing to pay for a share of Party Time stock today?
$  

What price would you anticipate the stock selling for at the beginning of year 3?
$  

If you anticipated selling the stock at the end of 2 years, how much would you pay for it today?
$  

Answer 1

What would you be willing to pay for a share of Party Time stock today

=4.3/(1+15%)^1+(4.3*1.10)/(1+15%)^2+(4.3*1.10*1.10)/(1+15%)^3+((4.3*1.10*1.10*1.06)/(15%-6%))/(1+15%)^3

=51.03

What price would you anticipate the stock selling for at the beginning of year 3

=(4.3*1.10*1.10)/(1+15%)^1+((4.3*1.10*1.10*1.06)/(15%-6%))/(1+15%)^1

=57.81

If you anticipated selling the stock at the end of 2 years, how much would you pay for it today

=4.3/(1+15%)^1+(4.3*1.10)/(1+15%)^2+57.81/(1+15%)^2

=51.03

the above is answer..