Sppose the stock price is given bypt dt11rprf , Ask an Expert

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Suppose the stock price is given by:

P_t== (D_t+1)/(1+rp+rf) + (E_tP_t+1)/(1+rp+rf)

P_t= price of stock at time t

D_t+1 = dividend payment at time t+1

r_p= risk premium

r_f= risk free rate (treasury rate)

EtP _t+1= expected price of stock at period t+1

a. show how to derive the current stock price as a function of stock prices at time t+3 and derive the expression for the stock price as a function of only the present discounted value of expected dividends. Explain what assumptions you need to make in order to obtain this answer.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92727143

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