Assume that S(0) = 100, the current price of the stock, and that the ex dividend price is:

S(1) = 80 (probability 0.125)

= 90 (probability 0.25)

= 100 (probability 0.375)

= 110 (probability 0.25)

1. The company will pay out a constant dividend D (independent of the future stock price). Compute D for which the expected return on stock would be 18%.

NOTE: Please provide calculation using formulas