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XYZ Corporation has begun growing with 20% per year and you expect this growth rate in earnings and dividends to continue in each of the
XYZ Corporation has begun growing with 20% per year and you expect this growth rate in earnings and dividends to continue in each of the next three years. (i) If the last dividend paid is $2, what will the dividend at the end of the next three years be? (ii) If the discount rate is 15% and the steady growth rate after year 3 is 4%, what should be the stock price today? (iii) What is your prediction for the stock price at the end of year I? (iv) What is the capital gain (loss) that you would have made based on the calculations in (ii) and (iii) above? (v) Show that stock's percentage return during the first year is equal to the discount rate mentioned in (ii)
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