Compute the value of stock using Dividend Discount Model.
General Cereal common stock dividends have been growing at an annual rate of 7percent per year over the past 10 years. Current dividend (Do) is $1.70 per share. What is the current valve of a share of this stock to an investor who requires a 12 percent rate of return if the following conditions exist?
a. Dividends are expected to continue growing at the historic rate for the foreseeable future.
b. The dividend growth rate is expected to increase to 9 percent per year.
c. The dividend growth rate is expected to decrease 6.5 percent per year.