Prob Set 5.1 1. (5 points) You are considering the purchase of a stock that just

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Prob Set 5.1

1. (5 points) You are considering the purchase of a stock that just paid a dividend of $2.00. During the next 2-year period (Years 1 and 2) this company will experience unusually high, but unsustainable growth of 14% per year. For the following two-year period (Years 3 and 4), the growth will slow to 10%, but still be above normal and unsustainable. From Year 5 onward, the company’s growth will be a normal, sustainable rate of 5.0%. Assume that the appropriate discount rate (required rate of return) for this stock is 12.0%.

What would you be willing to pay for one share of this stock today?

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