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Assignment 3-1, Question 1 1a.

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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=1.15x1.15=1.32
D2=1.32x1.15=1.52
D3=1.52x1.13=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-grs-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=$25.34Frist year number
1b. Calculate P1^ and P2^.
P1^ =1.52+1.72+PPP=NNNSecond year number
1.12(1.12)^2(1.12)^2
P2^ = GGG+PPP=UUUUUUThird Year number
1.121.12
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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