1) A common stock pays quarterly dividends. A dividend of $1.00 per share has just been paid. Dividends are expected to grow 5% per quarter for the next two years, then 2% per quarter forever. If the required rate of return is 16% per year, compounded quarterly, find the price of the stock.
2) SunB-Tec has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, SunB is expected to experience a 40% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and SunB’s growth rate will slow to 12% per year indefinitely. Stockholders require a return of 18% on SunB stock. The most recent annual dividend (D0) was $1.50 per share. What is the current price of SunB stock?