XYZ Inc is expected to pay the following dividends per share: $$3\mathrm{.}6$ in one year, $$4\mathrm{.}5$ in two

years, $$6$ in three years and $$8$ in four years. The dividend is then expected to grow at $8\%$ per

year in perpetuity.

The cost of capital for XYZ stock is $20\%.$

e$.$ Draw the timeline, showing the dividends at t $=1,2,3,4,5,6$ and $7.$

a$.$ What is the stock price?

b$.$ Suppose you buy the stock today, at the price calculated in part a$,$ and you plan to sell it

next year, immediately after receiving the dividend.

i$.$ At what price do you expect to sell your share next year?

ii$.$ What is your expected dividend yield? What is your expected capital gain rate?

What is your expected holding period return $($HPR$)?$

c$.$ Suppose you buy the stock today, at the price calculated in part a$,$ and you plan to sell it

next year, immediately before the year $1$ dividend is paid.

i$.$ At what price do you expect to sell your share next year in this case?

ii$.$ What is your expected holding period return $($HPR$)?$