Consider a stock that is planning to make its next dividend payment $3.25. They plan to increase the dividend by 30% for one year and then by 15% each year for three years. After that, they will level off to a constant growth rate of 4% in dividends per year forever. The required return on the stock is 15%.
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.