3. A stock plans to make its next dividend payment $5.00. Dividends are expected to decline by 2% per year indefinitely. The required return is 7%.

a. Find stock price today, in 5 years, and in 20 years.

b. Find dividend yield and capital gains yield this year, in 5 years, and in 20 years.

4. Consider a stock that is planning to pay a dividend of $3 at the end of this year. After that, dividends will grow at a fixed rate of 4.5% per year indefinitely. The required return on the stock is 11%.

a. What is the value of the stock today, in 5 years, and in 8 years?

b. What are dividend yield and capital gains yield yield this year, in 5 years, and in 8 years?

5. Explain why the value of a share of stock does not depend on how long you plan to hold the stock.

6. Explain the difference between preferred stock and common stock.