(Answered) Two stage ddmyou are considering the purchase of a common

Management Studies

Two Stage DDM

You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday. You expect this stock to have a growth rate of 8 percent for the next 2 years. The long-run normal growth rate after year 2 is expected to be 10 percent. In another word, the growth rate will remain constant at 10% per year forever after year 2. If you require a 12 percent rate of return, how much should you be willing to pay for this stock?

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