1) Diets For You announced today that it will begin paying annual dividends next year. The first dividend will be $0.12 a share. The following dividends will be $0.15, $0.20, $0.50, and $0.60 a share annually for the following 4 years, respectively. After that, dividends are projected to increase by 4 percent per year. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 8.5 percent?

2) Using the dividend growth model, explain why a firm would be hesitant to reduce the growth rate of its dividends.

3) Explain the difference between systematic and unsystematic risk. Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.