Question 1: XYZ Pharmaceutical, Inc. just got FDA approval for their new drug, Viagrina. The company has never paid a dividend, but they expect to pay one for the first time by the end of the year. The expected dividend is $3.00 per share and the company expects that dividend to increase at a rate of 20% for five years. After that, XYZ expects to see its dividend growth limited by the growth rate the US economy, which on average is 4.5% per year. If the required rate of return for other startup pharmaceutical companies like XYZ is 11%, what should be the fair price of XYZ's stock today?
Question 2: Suppose you bought a share of stock for $20 exactly six months ago and just sold it for $23. The stock also just paid a semi-annual dividend of $0.50. What is your before-tax return on the stock for the six-month period?