Suppose that currently, we are December 31, 2008. Following the financial crisis, ABC Copr will not distribute dividends in 2009 through 2013; for each of these years, the expected return required by investors is equal to 10%. You predict that the economy will recover. Based on the info you have on December 31, 2008, you predict that 1) the annual dividend paid by ABC Corp on Dec 31, 2014 will equal $20 and then grows at 5% per year; 2) on dEC 31, 2013, the expected return required by investors will go down from 10% to 7% per year (its normal level) and stay constant thereafter.

1)Based on your forecasts, determine the share price of ABC Corp on December 31, 2013.

2) What is your estimation of the share price of ABC Copr on Dec 31, 2008

3) Before the crisis, the share price of ABC Corp was equal to $950. Based on your computations, what fraction of the drop in price is due to: (I) cash-flow news, (ii) required return news?