A firm recently paid (yesterday) its annual dividend of $0.50 per share. The dividend is expected to increase at a 10% rate for the foreseeable future. The required return is 15%.
What are the dividends for each of the next 3 years?
Based on the constant growth model, what is the value of the stock today?
What is the expected value of the stock 1 year from today?
If you buy the stock today at the price calculated in question 2 and sell it in 1 year at the price calculated in question 3, what is your total percentage return on the stock?