1. The Red Bud Co. just paid a dividend of $1.20 a share. The company announced today that it will continue to pay this constant dividend for the next three years after which time it will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8%?
A. $3.09
B. $3.15
C. $3.23
D. $3.44
E. $3.60
2. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share of this stock if the required rate of return is 10.25%?
A. $33.03
B. $38.19
C. $41.05
D. $43.19
E. $45.81