Question: (a) Dividend for first second and third year are expected in the amount of RMI, RM2 and RM2.50 respectively and after that dividends will grow

(a) Dividend for first second and third year are expected in

(a) Dividend for first second and third year are expected in the amount of RMI, RM2 and RM2.50 respectively and after that dividends will grow at a constant rate of 5 % per year. Required rate is 10%. Calculate the value of stock? (10 marks) (b) Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the last dividend was RM1 and the required return is 20%, what is the price of the stock? (10 marks)

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