Problem 2. A company's stock pays constant dividends of Dr. Everyone expects this situation to last for ever. Consider each situation below independently. For each situation, plot the dynamics of dividends De and of the fundamental stock price St. Assume D to. When the time t comes, the company keeps its promise and raises the dividends to Dh. They will remain at this level DH for ever after. (B) At time to, the company announces that it will permanently raise the dividends to Dh at a future time t > to. When the time t comes, the company keeps it promise only partially: the dividends go up only to Dm, where DL to. When the time t comes, the company exceeds expectations: the dividends go up to DH > DM and they will remain at this level Dh for ever after. (D) At time to, the company announces that it will permanently raise the dividends at a future time t > to. With probability 50%, the dividends will be raised to DM > Dl. With probability 50%, the dividends will be raised to DH > Dm. When the time t comes, the company does not keep the promise and keeps the dividends at Dl, where they will remain for ever after. Problem 2. A company's stock pays constant dividends of Dr. Everyone expects this situation to last for ever. Consider each situation below independently. For each situation, plot the dynamics of dividends De and of the fundamental stock price St. Assume D to. When the time t comes, the company keeps its promise and raises the dividends to Dh. They will remain at this level DH for ever after. (B) At time to, the company announces that it will permanently raise the dividends to Dh at a future time t > to. When the time t comes, the company keeps it promise only partially: the dividends go up only to Dm, where DL to. When the time t comes, the company exceeds expectations: the dividends go up to DH > DM and they will remain at this level Dh for ever after. (D) At time to, the company announces that it will permanently raise the dividends at a future time t > to. With probability 50%, the dividends will be raised to DM > Dl. With probability 50%, the dividends will be raised to DH > Dm. When the time t comes, the company does not keep the promise and keeps the dividends at Dl, where they will remain for ever after