# Assignment 3-1, Question 1 1a.

 Assignment 3-1, Question 1 1a. Calculate the value of the stock today: 1. Calculate the PV of the dividends paid during the supernatural growth period: \$ % \$ D1= 1.15 x 1.15 = 1.32 D2= 1.32 x 1.15 = 1.52 D3= 1.52 x 1.13 = 1.72 PV of Dividends = 1.32 + 1.52 + 1.72 = \$3.63 1.12 (1.12)^2 (1.12)^3 2. Find the PV of Turbo’s stock price at the end of Year 3: P3^ = ____D4____ = __   _D3(1+g)______ rs-g rs-g G=.06% = 1.72(1.06) RS=.12% .12-.06 = \$30.39 PV of P3^ = 30.39 = \$21.71 (1.12)^3 3. Sum the two components to find the value of the stock today: Value of current stock (P0^)   = \$21.71 + \$3.63 = \$25.34 Frist year number 1b. Calculate P1^ and P2^. P1^ = 1.52 + 1.72 + PPP = NNN Second year number 1.12 (1.12)^2 (1.12)^2 P2^ = GGG + PPP = UUU UUU Third Year number 1.12 1.12 1c. Calculate the dividend yields and capital gains yield for Years 1, 2, and 3. Year Dividend Yield + Capital Gains Yield = Total Return 1 \$1.3225/MMM ≈ ??? + (\$26.93 – \$MMM) / \$MMM ≈ ??? ≈ 12% 2 \$1.5209/NNN ≈ ???? + (\$28.64 – \$NNN) / \$NNN ≈ NNN ≈ 12% 3 \$1.7186/UUU≈ ???? + (30.36 – \$UUU) / \$UUU ≈ ???% ≈ 12%

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