VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to

a dividend of $0.50 at the end of the year (i. e, D,=0.50), and it should

continue to grow at a constant rate of 7%o a year. If its required return is

12%, what is the stock's expected price 4 years from today?

CONSTANT GROWTH Quanta Inc. has a beta of 1.5. The market risk

premium is 7% and the risk-free rate is 3%. Assuming that the market is

in equilibrium and the stock currently sells for $30 a share, Quanta just

paid $2 dividend this year and the dividend is expected to grow at a

constant rate g. What does the market believe will be the stock price at

the end of 2 years?

NONCONSTANT GROWTH Microtech Corporation is expanding rapidly

and currently needs to retain all of its earnings; hence, it does not pay

dividends. However, investors expect Microtech to begin paying divi-

dends, beginning with a dividend of S1.00 coming 3 years from today. The

dividend should grow rapidly-at a rate of 50% per year-during Years

4 and 5: but after Year 5, growth should be a constant 8% per year. If the

required return on Microtech is 15%, what is the value of the stock today

?