Answer Happy

Suppose that the discount rate is 5%. Valuate the following stocks with the information below. Stock X is expected to pay a dividend of £5 per share forever. (10 marks) Stock Y will pay a dividend of £3 next year. Dividends are expected to grow at 1% per year forever. (20 marks) Stock Z does not pay any dividend this year because of the unstable market situation. However, analysts believe that it will pay a dividend of £1 one year later, £2 to be paid two years later, £5 to be paid three years later, and then grow at 1% per year forever. (20 marks) Suppose the market prices of the stocks above are different from your valuation. Could you provide some possible explanations? Explain. (20 marks)