ABC Inc is expected to pay its next dividend, in the amount of $$9$ per share, in one year. The

dividends are expected to grow at $8\%$ per year in perpetuity. The stock trades for $$75$ per share

today. Assume the stock is correctly priced, so the stock price at each point in time is equal to

the PV of all expected future dividends.

a$.$ Draw the timeline, showing the dividends at t $=1,2,3,4,5,6$ and $7.$

b$.$ What is the cost of capital for ABC stock?

c$.$ Suppose you buy the stock today, and you plan to sell it next year, immediately after

receiving the dividend.

i$.$ At what price do you expect to sell your share next year?

ii$.$ What is your expected dividend yield? What is your expected capital gain rate?

What is your expected holding period return $($HPR$)?$

d$.$ Suppose you buy the stock today, and you plan to sell it next year, immediately before the

year $1$ dividend is paid.

i$.$ At what price do you expect to sell your share next year in this case?

ii$.$ What is your expected holding period return $($HPR$)?$