Question

Price the Stock P₀ P₃ and P₈ for each of the three streams of dividend payouts, discount rate is 10%

Year	Dividend S1	Dividend S2	Dividend S3
1	$1	$2	$3
2	$1	$5	$3
3	$3	$8	$3
4	$3	$10	10% growth rate
5	$3	$15	10% growth rate
6	$3	10% growth rate	20% growth rate
7	$3		20% growth rate
8	$3		5% growth afterwards
9	$3 (no growth)

P0
P3
P8

Answer 1

Dividend, S2 cannot be valued as the cost of equity, k = Terminal Growth in dividends, g. g has be less than k for Gordon Growth dividend discount valuation.

Formulae

Formulae as above