Question
Calculate the price of following stocks. (a) [10 points] A stock that just paid its $2 annual dividend. The expected growth rate in dividends is
Calculate the price of following stocks. (a) [10 points] A stock that just paid its $2 annual dividend. The expected growth rate in dividends is 4% per year and this trend is expected to continue forever. The appropriate discount rate for this stock is known to be 10%. (b) [10 points] A stock that just paid its $2 dividend. The dividend is projected to grow at 15% for two years (i.e., growth at 15% in years 1 and 2), at 10% for the following one year (i.e., growth at 10% in year 3), and then at 5% for all subsequent years. The appropriate discount rate for this stock is 8%.
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