1. Two investors are evaluating Apple's stock for possible purchase. They agree on the expected value of D1, and on the expected future dividend growth rate. Further, they agree on the riskiness of the stock. However, one investor normally holds stocks for 2 years, while the other holds stocks for 10 years. On the basis of the analysis done in this chapter, should they both be willing to pay the same price for Apple's stock? Explain.
2. Silverado Mining Company's ore reserves are being depleted, so its sales are falling. Also, because of environmental issues, its pit is getting deeper each year so its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. If Do = $5 and Rs =15%, what is the value of Silverado Mining's stock?
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