Question: Calculate the price (today) of the following stocks (A, B, and C are independent cases). The required return is 8%.

1. Stock A is expected to pay a dividend of $4.50 next year (one year from today). The dividend is then expected to grow at a 3% annual rate, forever.
2. Stock B is not expected to pay a dividend for the next five years. Its first dividend is expected to be $4.50, paid six years from today. The dividend is then expected to grow at a 3% annual rate, forever.
3. Stock C is not expected to pay a dividend for the next three years. Its first dividend is expected to be $2.50, to be paid four years from today. The dividend will increase to $3.50 in year five, and $4.50 in year six. The dividend is then expected to grow at a 3% annual rate, forever.

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document