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A firm recently paid (yesterday) its annual dividend of $0.50 per share. The dividend is expected to increase at a 10% rate for the foreseeable future. The required return is 15%.

What are the dividends for each of the next 3 years?

Based on the constant growth model, what is the value of the stock today?

What is the expected value of the stock 1 year from today?

If you buy the stock today at the price calculated in question 2 and sell it in 1 year at the price calculated in question 3, what is your total percentage return on the stock?


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