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You forecast that Dull company will pay a dividend of D₁=$20 at the end of this...

You forecast that Dull company will pay a dividend of D₁=$20 at the end of this year. The dividend will stay the same in the second year (D₂=$20). After the second year, dividends will then grow at an annual rate of 10% (For example, D₃=$22, D₄=$24.2,...). What is the current fair price of the Dull stock when the required/expected return is 20%? (Please pay attention to the timing.)

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Answer #1

Di = 20 Da=20 D3=20x1010=22 20 20 20 X 110 Terminal vame (P2) = -, g=10.1. Re- g re=20%. 20x1010 20 .10 22o stock vame today

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