Please do not copy the answer from another question.

Del+ D2 D. + - +... 1. PE ratios a.) Consider the following asset pricing equation from class DA+PH P. 1+r P, is the real price of one share of stock and D, is the real dividend payment per share at time 1. The company pays out all profits in dividends and the real interest rate is constant. Show that if the company lasts forever, and if the real interest rate is constant, then P. 1+r (1+r) (1+r) b.) Suppose dividends grow indefinitely at rate g so D::1 = D. (1+g). Assume that 0 PE* (PE" is the price / dividend ratio you computed in part (b)) then P, ID, is expected to grow without bound. (You may answer this question mathematically or with a diagram.) iii. Show that if (P/D)> PE" then the growth rate in the price / dividend ratio approaches a constant as t +0. What is this constant? 1