Problem:
A stock you are interested in paid a dividend of $1 this morning. If you buy the stock today, you will get the first dividend after one year. The anticipated growth rate in dividends and earnings is 25% for the next 2 years before settling down to a constant 5% growth rate. The discount rate is 12%.
Required:
Question: Calculate the expected price of the stock.
Note: Please provide equation and explain comprehensively and give step by step solution.