The constant- growth Dividend Discount model: (DGM) Gordan Growth Model PO = DIVO (1+g)/r - g PO = DIV1/ r - g Ex1: Suppose the stock pay a $ 0.50 dividend per share, and expected to increase its dividend by 2% per year, and the required rate of return is 15%, how much should the stock selling for? Ex2: Suppose the stock is expected to pay a $2 dividend in one year, if dividend is expect to grow at 5% per year, and the required rate of return is 20%, how much should the stock selling for? **Remember we already have the dividend expected for next year, so we don't multiply the dividend by (1+g) . Non constant growth: Suppose the firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase by at a rate of 5% per year indefinitely. If the last dividend was $1 and the required return is 20%, what is the price of the stock