The price of a stock at Year 3 can be expressed as: a. \( D_{0} \times(1+R)^{5} \). b. \( D_{4} /(R-g) \). c. \( D_{0} /\left(R+g_{4}\right) \). o d. \( D_{5} /(R-g) \) e. \( D_{1} \times(1+R)^{5} \).
Upstudy AI Solution
Answer
Solution

Sign in to Unlock Answers for Free!
A Learning Platform Trusted by Millions of Real Students and Teachers.

Answered by UpStudy AI and reviewed by a Professional Tutor
Extra Insights
To find the price of a stock at Year 3, we typically look at how dividends grow over time. If we start with \( D_0 \), which is the initial dividend, and grows it at a constant rate \( R \), then the expression \( D_0 \times (1 + R)^3 \) will give us the dividend at Year 3. Therefore, none of the options exactly captures this expression. However, option e, \( D_{1} \times(1+R)^{5} \) might mislead because it starts one year after our interest in Year 3. Just remember, understanding the growth of dividends is key in stock price evaluations! When thinking about stock prices, don't forget to also consider the impact of market conditions and investor sentiment. Sometimes stocks don’t behave the way theories suggest due to these external factors. It's always a great idea to couple mathematical models with the latest market news to have a more holistic view of stock performance!