2.50 

You expect that Trader Moe’s and Buyer Sam’s will continue with the same dividend pattern moving forward. For Seller Bob’s you expect it to increase its dividend by a constant 8% starting in year 4.

The current stock price for each stock is as follows:

Trader Moe’s – $15.00

Buyer Sam’s – $38.00

Seller Bob’s – $28.00

If you require 15% return on your investments, which stock would you prefer to buy and why? (Hint: use the dividend discount model and compare this value to the share prices above)