1. A company will pay total dividend of $10,200. The company will increase its dividend by 6% percent for the next two years and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth, after which the company will keep a constant growth rate forever. The market value of companys debt is $80,000, and the number of share is 2,100. The appropriate discount rate is 9.2%.

1. What is the fair value of the share price for the firm?
2. The current share price for the firm is $80. If you expect that the company can be sold at $78 after the third dividend is paid, what would be the expected return if you invest this stock today?

b. Consider the following information: State of Probability Economy Stock A Stock B Stock C Return Return Return Recession 0.3 -15% 6% 6% Normal 0.52 8% 10% 8% Boom ? 12% 5% 9% Which stock has the most unsystematic risk? What stocks has the least systematic risk? Show your working