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Which is the fair value of the stock

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Reference no: EM132171864

Consider the stocks of the company Gamma, their expected price after 10 years is € 100. We also expect that the company will distribute three tranche of dividends of € 5 at the end of the third, sixth and 9th year (t =3,6,9). The discount rate of the cash flows (i.e. the annual expected return) is 12%.

  1. Which is the fair value of the stock?
  2. If the current price is equal to € 42, are you going to buy or to sell the stock? And if the price is € 38?

Reference no: EM132171864

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