Reference no: EM131822466

Two investors are considering purchasing Lowe’s Companies (LOW) common stock. The investors agree on the expected values of Div1 ($1.60) and the expected future dividend growth rate (3%). They also agree on the riski- ness of the stock and, thus, on the discount rate (required rate of return) of 5%. Assume that the first investor would plan to sell the stock after 2 years and the second investor would plan on selling the stock after 5 years. (a) Given the forecasted future dividend stream, calculate what the selling price would be at t=2. (1 pt.) [HINT: For parts a and b, please see the Lesson-4 handout behind the link “Stock Price = PV of Future Dividends”.] (b) Calculate what the selling price will be at t=5. (c) Draw a timeline for each investor, depicting the future cash flows that the investor expects to receive across his/her holding period, (d) Would our two investors agree on to- day's price of the stock, or would they disagree on the price of the stock because of the differences in the two an- ticipated holding periods? Show math and explain your answer.