Pear Inc stock is currently selling for $200. The company is expected (a year from today) to distribute a dividend of $4, and the dividend is expected to grow at a constant rate of 5% each year after.

What is the expected dividend three years from today? That is, find Div_3. Answer:

What is the expected price of the stock in one year? That is, find P₁. Answer:

If the price a year from today is $200, what do investors assume about the growth rate? Assume the equity return remains constant, and that Div₁=$4, and the future dividends will grow at a constant rate every year. That is, a year from today, investors just received a dividend of $4, and they believe the dividend will grow at a constant rate (different than the 5% stated above) every year after. Answer: