Varigrowth Inc. just paid a dividend of $0.62 (i.e., Do = $0.62). Such dividend is expected to grow by 20% per year for the next 3 years, after which it isexpected to grow at a long-run rate of 4%. Assuming investors require a 12% return on the stock,a) What is the price at t=3? $(to the nearest cent)b) What is its price today? $(to the nearest cent)c) What is your total rate of return (% to two decimals) if in one year the price is $11.14 and the dividend is $0.75? %What is your dividend yield?What is your capital gain (loss) yield?

The given problem relates to two stage dividend growth model.

Answered: /arigrowth Inc. just paid a dividend of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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