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Consider the following three stocks:

Stock A is expected to provide a dividend of $10 a share forever starting at the end of the first year (time t = 1).

•Stock B is expected to pay a dividend of $5 at the end of the first year (time t = 1). Thereafter, dividend growth is expected to be 4 percent a year forever.

• Stock C is expected to pay a dividend of $5 at the end of the first year (time t = 1). Thereafter, dividend growth is expected to be 20 percent a year for 5 years (ending at time t = 6) and then zero (i.e. the dividends stop growing) thereafter.

If the discount rate for each stock is 11 percent, what is the price of each stock?

Please show all formulas used and work.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92319557

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