Question

Suppose Acap Corp will pay a dividend of $2.71 per share at the end of this year and $3.08 per share next year. You expect Acaps stock price to be $53.52 in two years. Assume that Acaps equity cost of capital us 11.5%.
a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock two years?
b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year?
c. Given your answer in (b), what price would you be willing to pay for a share of Acaps stock today if you planned to hold the stock for one year. How does this compare to your answer in (a)

Answer 1

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