Consider a stock that is not planning to pay a dividend until five years from now. The first dividend (D5) will be $1.25. For 2 years after that, the dividend will increase by 20% each year. After that, the dividend growth rate will level off to a permanent 4%. The required return for this stock is 12%. a. Trace stock price, dividend yield, and capital gains yield for each year from today until 10 years from now.
Explain what is happening with each of these at different points in time.