The required rate of return on the shares in the companies identified below is 11.60% pa. Calculate the current share price (ex-dividend) in each case.

(a) The current earnings per share of Alpha Ltd are $4.80. The company does not reinvest any of its earnings. Earnings are expected to remain constant.

(b) Beta Ltds current dividend is $2.80 (D₀) and dividends are expected to grow at 5.5% pa indefinitely.

(c) Gamma Ltd is not expecting to pay dividends for three years, at the end of year four a dividend of $4.80 is planned and dividends are expected to grow at 3.25% pa forever after that.

(d) Delta limited plans to pay dividends of 2.55, 2.95, and 3.55 at the end of years 4, 5, 6 respectively followed by a dividend of 4.20 pa in perpetuity after that.

In the question part (c) and (d). (c). how comes you used 5.5% instead of 3.25% to calculate the stock price at end of year 3? (d) Please explain where the $49.99 came from. Also, please explain with workings how you got the $31.06 as an answer. I am abit confused.

Thanks

Catherine