Suppose a stock has the following information:
Required Return: 10% Dividend Paid Today: $1 Growth rate of dividends: 5%
(a) Given the information what should the current stock price be?
(b) If the growth rate of dividends increases to 6% and the dividend payment remains at $1. What should the stock price be? Comparing your answer to Part (a) what is the relationship between growth rate of dividends and stock price?
(c) If the required rate of return decreases to 9% and the dividend remains at $1 what should the rice of the stock be? Comparing your answer to Part (a) what is the relationship between the required rate of return and stock price? [Assume that the growth rate of dividends is 5%]