Question: ***********PLEASE ONLY ANSWER IF YOU KNOW 100%*********** QUESTION: A stock is expected to pay an annual dividend of $4 each year into the indefinite future.

***********PLEASE ONLY ANSWER IF YOU KNOW 100%***********

QUESTION:

A stock is expected to pay an annual dividend of $4 each year into the indefinite future. Rates of return on equally ricky assets are 5% (.05). The stock price is $100. Is there a bubble on this stock? How do you know? How big is the bubble? To be consistent with no arbitrage possibilities, what price are people expecting the stock will have next year? Explain. What price is it expected to have in 2 years?

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