Exercises 2 related to dividend theories (use Gordon’s constant and two-stage models)

Q1. A stock will pay a dividend of br. 10 exactly one year from now. Future dividends will grow at 6% for
the following 2 years and then a constant 4% every year thereafter. If the stock’s required rate of
return is 12%, what is a fair price for the stock today?

Q2. For the next three years, the annual dividends of a stock are expected to be br. 1, br.1.5 and br.2. In
addition the stock price will be br. 20 at the end of three years. If the required rate of return on the
share is 10%, what is the estimated value of a share today?

Q3. The current dividend,D0 is br. 6.Growth is expected to be 10% a year for three years and then 5%
thereafter. The required rate of return is 12%.calculate the current price of a share.

Q4. Suppose a co. will pay the following dividend for the next three years.

year Expected dividend

1 Br. 1
2 2
3 2.5
After the third year, the dividend will grow at a constant rate of 5% per year. The required return is
10%.what is the value of the stock today?