2. Suppose a random stream of future dividends can shrink as well as grow: Dk+1 =...

 

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2. Suppose a random stream of future dividends can shrink as well as grow: Dk+1 = D(1+g) with probability p, Dk+1=D (1-g) with probability pp, and Dk+1 = D with probability 1-p-PD, for constant profit growth rate g> 0. Then what is the expected value E[P] for a summable infinite stream of such dividends? What random constraint on g does summability impose? Now consider the probability p, that the firm goes bankrupt in any given year and so Dk+1=0 with probability P. Then what is the expected value E[P] for a summable infinite stream of such dividends and what constraint does summability impose? 2. Suppose a random stream of future dividends can shrink as well as grow: Dk+1 = D(1+g) with probability p, Dk+1=D (1-g) with probability pp, and Dk+1 = D with probability 1-p-PD, for constant profit growth rate g> 0. Then what is the expected value E[P] for a summable infinite stream of such dividends? What random constraint on g does summability impose? Now consider the probability p, that the firm goes bankrupt in any given year and so Dk+1=0 with probability P. Then what is the expected value E[P] for a summable infinite stream of such dividends and what constraint does summability impose?