Question: 1) Using the multi-stage Dividend Discount Model (DDM), calculate the value, today, of a share which pays no dividend as yet, but expects to pay

1) Using the multi-stage Dividend Discount Model (DDM), calculate the value, today, of a share which pays no dividend as yet, but expects to pay its first ever dividend of $0.50 per share in exactly 3 years from today (t=3), a dividend of $1 in year 4, and then expects the dividend to grow at 3% per annum indefinitely. The required return is 12% per annum.

b) A fast growth share has the first dividend (t=1) of $1.94. Dividends are then expected to grow at a rate of 7 percent p.a. for a further 4 years. It then will settle to a constant-growth rate of 3.0 percent. . If the required rate of return is 16 percent, what is the current price of the share?

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