If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected
to be $4.38 in one year, $4.62 in two years, $0 in three years, and $3.81 in four years; and 3) after the dividend is paid in four years, the dividend is expected to begin growing by 4.5 percent a year forever, then what is the current price of one share of the stock?
a. An amount less than $64.40
b. An amount between $64.40 and just less than $65.40
c. An amount between $65.40 and just less than $66.40
d. An amount between $66.40 and just less than $67.40
e. An amount equal to or greater than $67.40
The next three annual dividends paid by XYZ stock are expected to be $7.43 in one year, $2.79 in two years, and $3.05 in three years. The price of the stock is expected to be $45.78 in two years. The expected annual return for the stock is 15.20 percent. What is the current price of one share of XYZ stock?
a. $43.05 (plus or minus $0.05)
b. $45.01 (plus or minus $0.05)
c. $40.46 (plus or minus $0.05)
d. $42.52 (plus or minus $0.05)
e. None of the above is within $0.05 of the correct answer
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