1. Consider the following stocks:

Consider the following stocks

• Stock A is expected to pay a dividend of $0 next year and then from year 2 onwards a dividend of $2.50 every year,
• Stock B is expected to pay a dividend of $1 next year, $2 in year 2, with dividend growth expected to be 3% per annum from year 2.

If the required return on similar equities is 10%, calculate the price of each stock

If the required return on similar equities is 10%, calculate the price of each stock