Assume a stock that is expected to benet from supernormal growth of 8% in dividends per year over

the next six years. Following this period, dividends are expected to grow at a constant rate of 3% per

year forever. The stock paid a dividend of 5.50 last year.

Dividends are paid to shareholders once a year, the next payment is due one year from today, the second

payment two years from today, etc. The required rate of return on the stock is 10%.

Please provide numerical answers to the questions below:

(a) (10 points) What is the stock's fair present value ?

(b) (10 points) What is the contribution of growth to the stock's fair present value ?

(c) (10 points) In terms of the stock's fair present value, what is the implication of lowering the

growth estimate from 8% to 3%?