You are considering buying some stock in GrowInc Company. You estimate that next year's dividend has the following probability distribution:

You anticipate that next year's dividend will grow at a 20% rate for the following three years and then slow to a 5% rate of growth thereafter. The stock of GrowInc is half as risky as the stock market overall, and you expect the stock market as a whole to yield a 10% rate of return.

What do you expect next year's dividend to be?

$ 2.13

What rate of return should you require on a share of GrowInc if the risk-free rate of interest is 4%?

7%

Assume your answers to A and B above are $2.30 and 10%, respectively. How much should you be willing to pay for a share of GrowInc?

$ 66.53

How do you get these answers?

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