1. The annual dividend last year was $1.00 (DO). The dividend is expected to grow at a constant rate of 4%. The required return on the stock is 10%. 2 Using the constant growth dividend discount model, what is the price of the stock today? (4) 3 Remember to convert last year's dividend DO to the next year's D1 in the numerator of the formula 4 2. A stock's price is $50. The upcoming year's annual dividend is expected to be $2.00 (D1). The annual growth in dividends is 5%. What required return 5 (discount rate, r) is being used by the market to value the stock? (4) LO 6N 00 7 3. The annual growth rate in EPS is 5%. The P/E ratio is 12x. EPS last year was $1.00. What should the stock price bein 5 years? (4) 8 9 4. Find the price today of a stock that will pay dividends as follows: Next year, D1: $2.00 Two years from, now D2: $2.15 (6) 10 Beginning in year three and thereafter the dividend will grow constant at 3%. So the year 3 dividend D3 is $2.21. 11 The discount rate (required return) is 10%. 12 You should use the year three dividend in the constant growth model to find a future stock price at the end of year 2, P2. 13 Find the present value of that price, along with the present value of the first two divdends to solve for the price today. 14 Show you work below or to the right of the green column for partial credit. 15