$\frac{D_1}{P_0}+\frac{(P_1-P_0)}{P_0}=\frac{D_1}{P_0}+g$

Total Return $=$ ke $=$ Dividend Yield $($DY$)+$ Capital Gains Yield $($CGY$)$

Estimation of the Growth Rate $($g$)$: g $=$ Retention Ratio $*$ ROE

Question $1$: Consider a company which just paid a dividend D$0($paid today at time $0)$ of $$2\mathrm{.}00$ per share of common stock. Due to a variety of economic circumstances, this company expects to experience growth rates of $8\%$ and $10\%$ over the next two years. After that the company expects the growth rate to be $6\%$ indefinitely. If the company faces an equity discount rate of $10\%$ throughout, answer the following:

a$)$ What is the value of a share of common stock P$0$ today $($at time $0)?$

b$)$ What would you expect the price to be at time $1?($Assume that the dividend at time $2$ has already been paid$)$

c$)$ What are the expected capital gain yield and dividend for the first period?