Question 1) Price a stock that pays a dividend of $3 for the next ten years and then $2 forever after that. Assume the discount rate is 20%. Show in dollars and percent what you would earn if you held this stock for three years.
Question 2) Price a stock that pays no dividend for five years, then pays a $1 dividend in year 6 after which the dividend grows by 10% annually. Assume the discount rate is 15%. Show in dollars and percent what you would earn if you held this stock for two years.
Question 3) XYZ Corp. has earnings per share of $4, a payout ratio of 50% and a return on equity of 10%. This company's stock has a discount rate of 15%. Calculate the price of its stock. What change in the payout ratio would make the price of this stock increase? Intuitively, why?