Suppose Company ABC has just paid its shareholders a $3 dividend. You read reports by 3 different analysts about the future of Company ABC. Analyst 1 says that dividends will remain at $3 forever. Analyst 2 says that the company will steadily grow at a rate of 2% per year. Using our Dividend Discount and Gordon Growth models answer each of the following:

a. Suppose Analyst 1 suggests the stock is safe so the required rate of return should be 4% annually. What is the appropriate price according to Analyst 1?

b. Suppose Analyst 2 thinks the stock is slightly riskier so that the required rate of return should be 5%. What should the price be according to Analyst 2?

c. Analyst 3 agrees with Analyst 2 about growth rate of the company but she believes the company to be somewhat risky for the next 4 years. So she believes the required rate of return should be 10% for the first 4 years but 5% after that. What does Analyst 3 think the price should be?