How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask vinsu Your Own Question
vinsu
vinsu , Professor
Category: Finance
Satisfied Customers: 522
Experience:  MBA in Finance and Marketing
187364
Type Your Finance Question Here...
vinsu is online now
A new question is answered every 9 seconds

Two investors are evaluating General Motors stock for possible

Resolved Question:

Two investors are evaluating General Motors' stock for possible purchase. they agree on expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years, while the other normally holds stock for 10 years. on the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for GM stock. T or F? explain
Submitted: 7 years ago.
Category: Finance
Expert:  vinsu replied 7 years ago.

The answer is true. The value of a share of stock is the present value of its expected future dividends. If the two investors expect the same future dividends and they agree on the stock's riskiness (implying the discount rate is the same), then they should reach a similar stock value using the dividend discount model which discounts the dividends and uses growth rate and required return and these are same for both the investors. The time period is not material, since both the investors would discount all future dividends to get the price today and so both would arrive at the same price.

vinsu and other Finance Specialists are ready to help you
Customer: replied 7 years ago.
please close and lock