Compute price you would be willing to pay for stock

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Reference no: EM131911965

1. Suppose your broker is offering you shares of Crusty Inc. common stock that paid of dividend of $1.00 last year. You expect the dividend to grow at the rate of 4% per year for the next 3 years. You expected the future price at the end of 3 years when you sell it to be $22.50. Compute the price you would be willing to pay for the stock of Crusty today. Assume you require a 12% rate of return. (Show the timeline and set up the formula).

2. Suppose your broker is offering you shares of Crusty Inc. common stock that paid of dividend of $1.20 last year. You expect the dividend to grow at the rate of 5% per year. Compute the price you would be willing to pay for the stock of Crusty today. Assume you require an 11% rate of return. (Show the timeline and set up the formula).

Reference no: EM131911965

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