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What is the price of the stock in year 5

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Reference no: EM132541001

Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next five years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.

i. Calculate the dividends for years 1, 2, and 3.

ii. What is the price of the stock in year 5?

iii. Calculate the present value today of dividends for years 1 to 5.

iv. What is the price of the stock today (P0)?

Reference no: EM132541001

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