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Explain the three-stage model

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Consider a stock, which is expected to pay a $1 dividend in one year. The year after, it will pay $2 for three years. After that, the dividends will grow at a constant rate of 2% per year forever. If the required rate of return is 8% on the stock, what is its value to you today? (hint: this is a three-stage model. In the lecture, we have a two-stage model. The intuition is the same)

Reference no: EM133118773

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