How much is the value of the stock to this investor

Reference no: EM13282904

1.An investor is contemplating to purchase the common stock of GE at the beginning of the year and hold the stock for two years. The investor expects the year-end dividend to be $1.0 in the first year and $1.20 in the second year, and expects to sell the stock for $30 at the end of the second year. If this investor's required rate of return is 10 percent, then how much is the value of the stock to this investor? 2.Samurai is an Internet start-up company. At the beginning of this year the company announced its decision to go public by selling 1,000,000 shares at $15 per share. Like many other internet companies, it will not make any profit in the first two years after its initial public offering. However, it is expected that the company will make a profit in the third year and pay its first dividend of $1.0 per share at the end of that year. Moreover, dividends are expected to grow at a constant annual rate of 10% thereafter. Since this firm is risky, the required rate of return is 15%. Based on the above information, do you think the offer price is fair? Please explain.

Reference no: EM13282904

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