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Description of Stock Values

Integrated Potato Chips paid a $1 per dividend yesterday. You expect the dividend to grow steadily as a rate of 4% 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%, 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. Given a growth rate, the expected dividend in years 1-3 is 1*1.04,
1*1.04^2, and 1*1.04^3, or, with rounding, 1.04, 1.08, and 1.12.

b. P0 = DIV1/r-g (p. ...

Solution Summary

A description of stock values is given.