Question: An equity is expected to pay its first dividend in exactly 2 years' time. It is assumed that this dividend will be $0.20 per share.

An equity is expected to pay its first dividend in exactly 2 years' time. It is assumed that this dividend will be $0.20 per share. Subsequent annual dividends are assumed to grow at 6% p.a. compound for the following 10 years, and at 3% p.a. compound in perpetuity thereafter. Calculate, showing all working, the price of the share to the nearest $0.01, that would give an effective rate of return of 7% p.a. [7

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