Question: Firm Prospect Inc. does not pay any dividend now and is expected to start paying dividend of $5 per share exactly TWO years from today.

Firm Prospect Inc. does not pay any dividend now and is expected to start paying dividend of $5 per share exactly TWO years from today. The dividend is also expected to grow at a constant rate 5% afterwards forever. Its CAPM required rate of return is 10%. Which of the following is true regarding the fair price of its stock today using the constant-growth dividend discount model?

It is greater than $100.
It is equal to $100.
It is less than $100.

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