You have thoroughly analyzed a stock and have estimated that the following dividends will be paid. At the end of the first year = $1, at the end of the second = $2, at the end of the third = $2.5. After this, dividends will grow at a constant 5% forever.

You believe that a discount rate of 14% is appropriate given the riskiness of the security.

1. What is the current price of the stock at P₀?
2. What is the dividend yield at P₀?
3. What is P₁?
4. What is the capital gain between P₀ and P₁?

Answer rating: 100% (QA)

To calculate the current price of the stock P0 we need to find the present value of all future divid... View the full answer