Question: A company does not plan to pay dividends until 3 years from now. The first dividend will be $3 (i.e. D3=$3). After that, dividends will

  1. A company does not plan to pay dividends until 3 years from now. The first dividend will be $3 (i.e. D3=$3). After that, dividends will increase by a fixed rate of 3.5% per year indefinitely. The required return on the stock is 12%.
    1. What are the stock price, dividend yield, and capital gains yield in 2 years?
    2. What are the stock price, dividend yield, and capital gains yield in 5 years?
    3. What are the stock price, dividend yield, and capital gains yield this year?
    4. Explain what will happen to the stock price after the dividends have begun to be paid.

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