Colgate-Palmolive company has just paid an annual dividend of $0.96. Analysts are predicting an 11% per year growth rate in dividends over the next five years. After then, Colgates dividends are expected to grow at current industry average of 5.2% per year forever. Colgates equity cost of capital is 8.5% per year.

• What is the market price of Colgate-Palmolive stock?

• Suppose the stock sells for less than the amount in paragraph a. How would you explain this difference?

Assume you purchase the stock in year 1 (P1) and you sell it in year two (P2), immediately after the dividend was paid, what is your rate of return?