question:

A stock is expected to pay dividends of $1.20 per share in Year 1 and $1.35 per share in Year

2. After that, the dividend is expected to increase by 2.5% annually. What is the current

value of the stock at a discount rate of 14.5%

my solution:

pv of first year dividend: pv(rate=.145,nper=1,pmt=1.2)=1.05

pv of second year dividend: pv(rate=.145,nper=1,pmt=1.35)=1.18,

modified to the first year

pv of 1.18: pv(rate=.145,nper=2,fv=1.18)=0.9

pv of future dividend:

dividend:1.35*1.025=1.384

rate:.145-.025=.12

pv of future dividend:1.384/.12=11.53

modified to the first year:

pv of 11.53: pv(rate=.145, nper=2,fv=11.53)=8.79

total value:8.79+1.05+0.9=10.74

but the correct answer is 10.87.

why?