Question 1: How much would you expect to pay for a stock with the following characteristics?
Expected quarterly dividends: $0.70
Expected stock price in 3 years: $15.00
Required market rate of return: 12%
You have no expectations regarding dividends after 3 years.
Question 2: How much would you expect to pay for a stock that is expected to pay $1.00 quarterly dividends indefinitely? The expected market return is 14%.
How much would you expect to pay for the stock from the above problem if the dividend is expected to grow at 6% each year?