A company will pay a $2 per share dividend in 1 year. The dividend in 2 years will be $4 per share, and it is expected that dividends will grow at 5% per year thereafter. The expected rate of return on the stock is 12%.

a. b. c.

What is the current price of the stock?

What is the expected price of the stock in a year.

Show that the expected return, 12%, equals dividend yield plus capital appreciation.