Find the present value of the dividend stream

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Reference no: EM131321458

Your broker offers to seel you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 5% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 12%. The expected dividend for each of the next 3 years is: D1= $2.10, D2= $2.21, and D3= $2.32.

Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PV's of D1, D2, and D3, and then sum these PV's.

Reference no: EM131321458

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