1. You have the following data as of November 12th, 2018 for GE. The current stock price is $24.35. Current earnings and dividends per share are $1.36 and $0.88, respectively. Market analysts estimate that dividend growth for the next year should be 7%. The appropriate discount rate for dividends is 10.80% per year.

a) Assuming a target one-year price given by analysts of $29.00, compute the price of GE stock. If you were a stock analyst, what your recommendation would be (buy, sell, or hold/do nothing)?

b) Now assume that the stock can be modeled as a growing perpetuity and that the discount rate stays constant over time. If the long-run growth rate of dividends is 7%, compute the value of the stock using the Gordons growth model. If you were a stock analyst, what your recommendation would be?