Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years. The last dividend paid was $2. The discount rate is 15% and the steady growth rate after 3 years is 4%.
a. What is the capital gain in stock price from year 0 to year 1?
b. Calculate the expected rate of return.