Practice Problems
For each of the following problems, calculate the value of a share of stock today.
Problem | Current dividend D_{0} | Growth rate of dividends for the first stage g_{1} | Growth rate of dividends for the second stage g_{2} | Length of the first stage of growth, in years n_{1} | Required rate of return r_{e} |
1 | $2.5 | 10% | 2% | 3 | 7.5% |
2 | $1 | 20% | 5% | 3 | 9% |
3 | $1 | 10% | 2% | 3 | 9% |
4 | $1 | >15% | 5% | 4 | 9% |