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Question 2 (14 marks) Gamma Corp. is expected to pay the following dividends over the next four years: $5, $12, $18, and $1.80. Afterward, the
Question 2 (14 marks) Gamma Corp. is expected to pay the following dividends over the next four years: $5, $12, $18, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return on the stock is estimated to be 14 percent. (a) What is the share price at year 4? (2 marks) (b) What is the share price today? (3 marks) (c) If the stock is selling at $20 at year 4, i. What is the market required return at year 4? (3 marks) ii. What is the dividend yield at year 4? (1 mark) iii. What is the capital gain yield at year 4? (1 mark) (d) In general, the common stock holders of a corporation enjoy certain rights. Describe any TWO of such rights. (4 marks)
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