Lavender Group (LVG) Ltd has not paid any dividends previously and expects to pay its first semi-annual dividend of $0.25 cents in one years time. LVG expects the earnings per share to grow at 8% p.a. compounded semi-annually for two years from today before reverting to a growth rate of 4% p.a. compounded semi-annually forever. LVG maintains a constant payout ratio. The shareholders of LVG require a return of 14.49% p.a. compounded annually.

• 1,What should be the price of one LVG share today?
• $4.71
• $4.95
• $4.85
• $5.25
• $4.80
• 2,Suppose you bought shares two years ago for $1.95 and sold them at the current price. What annually compounded rate of return would you have earned over the two years?
• 57.71% p.a.
• 56.89% p.a.
• 55.41% p.a.
• 64.08% p.a.
• 59.33% p.a.
• 3,Suppose the expected future growth rate after the first 2 years was revised down from 4% p.a. compounded semi-annually to 0% p.a. What impact would this have on LVGs current share price?
• The price would go down by $1.39
• The price would go down by $1.18
• The price would go down by $1.21
• The price would go down by $1.30
• The price would go down by $1.27