12.5 PES) 2. Two investors are considering purchasing Supremo, common stock. The investors agree on the expected value o

[answerhappygod]

12 5 Pes 2 Two Investors Are Considering Purchasing Supremo Common Stock The Investors Agree On The Expected Value O 1 (43.49 KiB) Viewed 53 times

12.5 PES) 2. Two investors are considering purchasing Supremo, common stock. The investors agree on the expected value of Div; = $2.40 and the expected future dividend growth rate of 2%. They also agree on the riskiness of the stock and on the discount rate of 5.9%. Assume that the first investor would plan to sell the stock after 3 years and the second investor would plan on selling the stock after 7 years. (a) Given the future forecasted future dividend stream, calculate what he selling price would be at t=3. [Answer $65.31) (1 pt). (b) Calculate what the selling price will be at t=7. [Answer $70.69) (1 pt) (c) Draw a timeline for each investor, depicting the future cash flows (nothing more than that) that the investor expected to receive across their respective holding period. (2 pts) (d) Using the finite horizon valuation approach and cash flows on your timelines from part c, calculate a fair current price for each investor. Briefly explain why they are the same. (2 pts).