ABC Inc is expected to pay dividends of $0.50 one year from now (t=1), $1.00 two years from now, $1.25 three years from now, with all subsequent dividends growing at a rate of 4%. That is, the year 4 dividend is 4% higher than the year 3 dividend, and the year 5 dividend is 4% higher than the year 4 dividend, and so on. Assume that the appropriate discount rate for the stock is 10.5%.

a) Draw a timeline of the dividends from t=0 to t=6.

b) Calculate the stock price using the Gordon Growth model at t=2. Denote this as P2. c) What is the price of the stock today (at t=0)? Calculate this by adding up the present value of D1, D2, and P2.

d) Suppose an investor bought the stock today and plans to sell it in 4 years. What is the present value of all future cash flows they will receive? Note that they will receive four dividends, plus the price of the stock sold at t=4. Compare your answer to that of part c.

Show all work for parts b-d.