Example 5: Nonconstant Growth

Suppose a stock will pay the following dividends and has the following required return:

Year 1:	$ 1.00
Year 2:	$ 2.00
Year 3:	$ 2.50
Required return:	10.0%

After the third year, the dividends will grow at:

5.0%

What is the price of the stock? First, we need to find the price of the stock when it begins a constant growth rate, which is in Year 3. The price of the stock in Year 3 will be:

Price in Year 3:

The price today is the present value of the future dividends, plus the present value of the future price, so:

Price today:

Please help answer the question above: "Price in Year 3" and "Price Today"

Thank you