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2. Retained Earnings Suppose there is a firm that earns $1 per share each year for years 2 - 6. For simplicity we will assume the world "ends in period 6 (so there are no subsequent periods). The market real rate of return is 1+r = 1 in every period. The firm is considering two payout options: Option A: The firm pays out all its earnings in dividends each period. Option B: The firm retains its earnings (it keeps them in a safe at the firm headquarters) until period 6 at which point it pays them out in a single large dividend. Use this information to fill in the missing values in the table below: (Hint: review the material on the rate of return on equity from the lecture videos and recall that we should have RORE(+1 = 1 + rt.) Year 1 2 3 4 5 6 Earnings 0 1 1 1 1 1 Share Price A 0 Share Price B 0 Capital gain or loss for asset A* * Please write "P" or "-" to indicate a capital gain or loss respectively. Hint: for the capital gain row, just report AP 2. Retained Earnings Suppose there is a firm that earns $1 per share each year for years 2 - 6. For simplicity we will assume the world "ends in period 6 (so there are no subsequent periods). The market real rate of return is 1+r = 1 in every period. The firm is considering two payout options: Option A: The firm pays out all its earnings in dividends each period. Option B: The firm retains its earnings (it keeps them in a safe at the firm headquarters) until period 6 at which point it pays them out in a single large dividend. Use this information to fill in the missing values in the table below: (Hint: review the material on the rate of return on equity from the lecture videos and recall that we should have RORE(+1 = 1 + rt.) Year 1 2 3 4 5 6 Earnings 0 1 1 1 1 1 Share Price A 0 Share Price B 0 Capital gain or loss for asset A* * Please write "P" or "-" to indicate a capital gain or loss respectively. Hint: for the capital gain row, just report AP