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Consider a stock that is planning to make its next dividend payment $3. They plan toincrease the dividend by 30% for one year and then by 15% each...
Consider a stock that is planning to make its next dividend payment $3.25. They plan toincrease the dividend by 30% for one year and then by 15% each year for three years. After
that, they will level off to a constant growth rate of 4% in dividends per year forever. The
required return on the stock is 15%.
a.Trace stock price, dividend yield, and capital gains yield for each year from today until
10 years from now. Explain what is happening with each of these at different points in
time.
b. Suppose that the actual price of this stock today (the market price) is $25. What is the
implied required return on the stock?
