Ranges of the growth rates and the resulting dividends

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Reference no: EM131315768

1. A stock pays dividends of $1.00 at t = 1. (D1 is provided here, not D0) It is growing at 35% between t =1 and t = 2, after which the growth rate drops to 10%, and will continue at that rate into the future. If the discount rate for this stock is 12%, what should be the value of the stock at t = 0? Hint: Make a diagram indicating ranges of the growth rates and the resulting dividends.

A. $53.04

b. $21.74

c. $55.70

d. $58.41

e. $61.16

2. A stock pays dividends of $1.00 at t = 1 (t = 1 NOT t = 0). Dividends are expected to grow at a constant rate of 14% into the future. With a discount rate of 24%, what should the price of the stock be at t = 1? (price needed for t =1 NOT t = 0) (hint: there is more than one way to do this problem).

a. $11.20

b. $11.40

c. $11.60

d. $11.80

e. $12.00

Reference no: EM131315768

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