# Question

A stock currently pays a dividend of $1.00 per share. Dividend growth rates in years 1-4 are expected to be 25%, 20%, 15%, and 10%, respectively. Starting in year 5 dividend growth is expected to settle down to a long-term average rate of 5%. The stock's CAPM required return = 9.0%.

a.) Calculate the intrinsic value of the stock.

b.) What is the stock's expected return if you buy it for $35 per share? Explain why the expected return at $35 per share differed from 9.0%.

c.) Calculate the stock's expected return if you buy it for $45 per share. Explain why the expected return at $45 per share differed from 9.0%.

a.) Calculate the intrinsic value of the stock.

b.) What is the stock's expected return if you buy it for $35 per share? Explain why the expected return at $35 per share differed from 9.0%.

c.) Calculate the stock's expected return if you buy it for $45 per share. Explain why the expected return at $45 per share differed from 9.0%.

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