Question 1. A

Question 1. B

Suppose a stock has just paid a $6 per share dividend. The dividend is projected to grow at 20% next year, then 10% for one year, and then 5% indefinitely. The required return is 7.2%. A person who buys the stock at year 2 will receive the dividends of year 3 onward, that is $8.316 at year 3 , followed by all subsequent dividends which grow at a rate of 5%. How much will the price of the stock be at year 2? (The question asks for the price at which the stock will sell at year 2 , rather than the present value of that price at year 2) (This is the same as the previous question, but the required rate is different). Suppose a stock has just paid a $6 per share dividend. The dividend is projected to grow at 20% next year, then 10% for one year, and then 5% indefinitely. The required return is 9.7%. A person who buys the stock at year 2 will receive the dividends of year 3 onward, that is $8.316 at year 3 , followed by all subsequent dividends which grow at a rate of 5%. How much will the price of the stock be today? (The question asks for the present value of all dividends that will be received by the stock starting with next year's $7.20. The stock buyer does not receive the present dividend of \$6.)