Indipendent questions

a) An ordinary share pays annual dividends at a constant growth rate of 5% p.a. The share has just paid a dividend of $1.70 yesterday. Using the dividend discount model (DDM), calculate the value of the share today if the rate of return is 15% p.a. (Round you answer to the nearest cent) (2 marks)

b) A share is expected to pay its first dividend of $1.20 in three years. After that, the dividend will remain unchanged for the foreseeable future. An investor requires a rate of return of 6% p.a. Using the dividend discount model (DDM), calculate the maximum price the investor should pay for this share. (Round your answer to the nearest cent.) (2 marks)