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Consider the following three stocks. Stock A is expected to provide a dividend of $10 a share forever. Stock B is expected to pay a
Consider the following three stocks.
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Stock A is expected to provide a dividend of $10 a share forever.
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Stock B is expected to pay a dividend of $5 next year. The dividend growth is expected to be 4%
per year forever.
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Stock C is expected to pay a dividend of $5 next year. The dividend is expected to grow by 20%
annually for 5 years (i.e., until year 6) and then pay no dividend forever.
If the discount rate for each stock is 10%, which stock is the most valuable?
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