Problem 1 Perpetual dividends
Suppose that a share pays a dividend of $4 annually, forever. If the interest rate will be 5% forever, calculate the price of a share.
A. $4.00
B. $40.00
C. $10.00
D. $80.00
E. $200.00
Problem 2 Two period dividend and final price
Suppose that a share is expected to pay $5 in one year from now, $6 in two years and after paying the second year dividend its price will be $120. If the interest rate is 4%, calculate the price of the share today.
A. $120.00
B. $121.30
C. $132.40
D. $117.03
E. $142.11
Problem 3 Delayed dividends
Suppose that a stock is not expected to pay any dividend for the next 5 years. Starting from year 6, the stock will pay a dividend of $6 each year. The rate at which we discount the payments is 3%.
A. $6.00
B. $150.00
C. $172.52
D. $194.25
E. None of the given alternatives