a) Mature Products Corporation produces goods that are very mature in their product life cycles. Mature Products Corporation is expected to pay a dividend in year 1 of $2.00, a dividend of $1.50 in year 2, and a dividend of $1.00 in year 3. After year 3, dividends are expected to decline at a rate of 1% per year. An appropriate required rate of return for the stock is 10%. What is the stock fair value?

b) Discuss the dividend policy. Why do some companies pay a high dividend, the price can be increased? While some companies pay a high dividend, the price can be decreased?

(25 marks)