The answer to Dividend growth rate
A stock just paid a dividend of $2.00. Due to the introduction of a proprietary product, the dividend growth rate is expected to be 30 percent for the next two years, 15 percent for years 3 and 4, and then return to a constant growth rate assumption of 4 percent thereafter. The required return on the stock is 18 percent.
(a) What is the current expected price of the stock?
(b) What is the expected price of the stock at Year 6?