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You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock AB Inc. just paid a dividend of $4.50. The dividend is expected to increase by 60%, 40%, 30% and 10% per year respectively in the next four years. Thereafter the dividend will increase by 4% per year in perpetuity.

The second stock is CD Inc. CD will pay its first dividend of $8 in 5 years. The dividend will increase by 40% per year for the following 3 years after its first dividend payment. Thereafter the dividend will increase by 3% per year in perpetuity.

Both stocks have a required rate of return of 25% per year for the next 2 years, and thereafter the required rate of return will be 10%.

1. Calculate ABs expected dividend for t = 1, 2, 3, 4, and 5.
2. What is the current price of AB?
3. Calculate CDs expected dividend for t = 1, 2, 3, 4, 5, 6, 7, 8 and 9.

What is the current price of CD?