Jay Ritter invested $1,000 in the stock of the SDH Company. The company pays a current dividend of $2, which is expected to grow by 20 percent per year for the next two years. What will the dividend of the SDH Company be after two years? A future value calculation gives:

Figure 4.6 illustrates the increasing value of SDH’s dividends. The Growth of the SDH Dividends

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$2 x 1.20²= $2.88