Question
Consider the following three stocks: Stock A is expected to provide a dividend of $10 a share forever starting at the end of the first
Consider the following three stocks: Stock A is expected to provide a dividend of $10 a share forever starting at the end of the first year (time t = 1). Stock B is expected to pay a dividend of $5 at the end of the first year (time t = 1). Thereafter, dividend growth is expected to be 2 percent a year forever. Stock C is expected to pay a dividend of $5 at the end of the first year (time t = 1). Thereafter, dividend growth is expected to be 20 percent a year for 5 years (ending at time t = 6) and then zero (i.e. the dividends stop growing) thereafter. If the discount rate for each stock is 5 percent, what is the price of each stock?
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