Question text

A company just paid out an annual dividend of $5. The dividend amount will grow at 3%annually forever, e.g., next year's dividend amount will be $5.15 and so on. If you buy a share today and sell it at year 5, how much of a capital gain (not including the dividend yield) would you expect? Assume that the required rate of return for this stock is 20%.

a. $2.50

b. $3.33

c. $4.00

d. $4.83