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Question 2 AB Corporation is experiencing a rapid growth. Dividends are expected to grow at 20 percent per year for Year 1 and Year 2,
Question 2 AB Corporation is experiencing a rapid growth. Dividends are expected to grow at 20 percent per year for Year 1 and Year 2, 10 percent per year for Year 3 and then 5 percent per year indefinitely from Year 4 onwards. The required return on this stock is 10 percent, and the stock currently sells for $71.15 per share. Assume the market is in equilibrium. (a) What is the projected dividend for the coming year (i.e., D.)? (6 marks) (b) Calculate the expected capital gains yield for the coming year. (4 marks)
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