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Varigrowth Inc. just paid a dividend of ?$0.96 ?(i.e., D0? = ?$0.96?). Such dividend is expected...

Varigrowth Inc. just paid a dividend of ?$0.96 ?(i.e., D0? = ?$0.96?). Such dividend is expected to grow by 20?% per year for the next 3? years, after which it is expected to grow at a? long-run rate of 3.5?%. Assuming investors require a 10?% return on the? stock,

?a) What is the price at? t=3? ?$__ ?(to the nearest? cent) ?

b) What is its price? today????$__ ?(to the nearest? cent) ?

c) What is your total rate of return? (% to two? decimals) if in one year the price is ?$26.16 and the dividend is ?$1.19?? __% What is your dividend? yield? __?%??What is your capital gain? (loss) yield??___%

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Answer #1
Year Div
0 0.96
1 1.152
2 1.3824
3 1.65888
4 1.716941

Price at year 3 =Div year 4/(r-g) = 1.716941/(0.10-0.035)=$26.41

b)

Year Div Terminal Value DF PV
1 $ 1.1520 0.909091 $   1.0473
2 $ 1.3824 0.826446 $   1.1425
3 $ 1.6589 26.41447385 0.751315 $ 21.0919
4 $ 1.7169
Price $ 23.2817

Price =$23.28

c)

Purchase $            23.2817
Dividend 1.19 5.11% (Capital gains yield)
Price 26.16 12.36% (Dividend yield)
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