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# Stock Values

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Stock Values. Integrated Potato Chips paid a \$1 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4 percent per year.

a. What is the expected dividend in each of the next 3 years?
b. If the discount rate for the stock is 12 percent, at what price will the stock sell?
c. What is the expected stock price 3 years from now?
d. If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? Compare your answer to (b).

#### Solution Preview

a. What is the expected dividend in each of the next 3 years?
You can find the expected dividend in each of the next 3 years by multiplying the dividend received in the previous period with the growth rate of 4%.
Year 0 \$1
Year 1 \$1 x 1.04 = \$1.04
Year 2 \$1.04 x 1.04 = \$1.08
Year 3 \$1.08 x 1.04 = \$1.12

b. If the discount rate for the stock is 12 percent, ...

#### Solution Summary

This solution is comprised of a detailed explanation to find the expected dividend in each of the next 3 years, the price of the stock, and the expected stock price 3 years from now.

\$2.19