Problem 1:
a) What is the price today of a stock that just paid a dividend (at t=0) of $1.00 per share if the dividend is expected to grow by 15% for the next two years (t = 1 and 2) and then by 4% per year, thereafter.Assume r=12% per year (compounded annually).
b) At what price should the stock sell two years from today (just the instant before the t=2 dividend)?
Problem 2:
What is the value today of receiving $1,000 every other year for twenty years (10 payments, total)……
a) If the first payment is received two years from today, and the appropriate discount rate is 10% per year, compounded annually?
b) If the first payment is received one year from today, and the appropriate discount rate is 10% per year, compounded annually?
c) If the first payment is received one year from today, and the appropriate discount rate is 10% per year, compounded semi-annually?
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