A stock is expected to pay its first dividend of $1 in one year, which will grow at 40% pa forever afterwards. So the dividend in 2 years will be $1.40, and in 3 years it will be $1.96, and so on in perpetuity.

The required total return is 60% pa, given as an effective annual rate.

You just paid your stock broker $8 to buy the stock in an IPO.

Which of the following statements about the stock purchase is NOT correct?

Select one:

a. The NPV of your purchasing decision was -$3 compared to not buying the stock.

b. The internal rate of return (IRR) of your purchasing decision was 52.5% pa.

c. You should expect the price to open 7.25% lower than your IPO purchase price the moment the stock begins trading.

d. The payback period of your purchasing decision is expected to be 5 years.