Consider a stock that is planning to pay a dividend of $3 at the end of this year. After that, dividends will grow at a fixed rate of 4.5% per year indefinitely. The required return on the stock is 11%.
a. What is the value of the stock today, in 5 years, and in 8 years?
b. What are dividend yield and capital gains yield yield this year, in 5 years, and in 8 years?