#1

A stock is expected to pay a dividend of $2.25 at the end of the year (D1 = $2.25). The dividend is expected to grow at a constant rate of 4% a year. The stock has a required return of 11%:

1) What is the value of the stock one year from today?

2) What is the value of the stock five years from today?

#2

Chadmark Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Chadmark to begin paying dividends, with the first dividend of $0.75 coming 2 years from today. The dividend should grow rapidly thereafter, at a rate of 40% per year, during Years 3 and 4. After Year 4, the company should grow at a constant rate of 10% per year. If the required return on the stock is 16%.

1) What is the value of the stock today