17) You are considering the purchase of a common stock that paid a dividend of $2.00

yesterday. You expect this stock to have a growth rate of 15 percent for the next 3 years,

resulting in dividends of D

1

=$2.30, D

2

=$2.645, and D

3

=$3.04. The long-run normal

growth rate after year 3 is expected to be 10 percent (that is, a constant growth rate after

year 3 of 10% per year forever). If you require a 14 percent rate of return, how much

should you be willing to pay for this stock? Explain your answer

A) $89.75

B) $83.65

C) $56.46

D) $62.57