1. Consider the stock of CTech Inc, which will pay a $3 dividend one year...
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1. Consider the stock of CTech Inc, which will pay a $3 dividend one year from today. That dividend will remain constant forever. Also consider the stock of GTech Inc, which will pay a $3 dividend one year from today. That dividend will grow after that at a constant growth rate of 5% forever. The market required rate of return of both stocks is 15%. a. What are the two stocks current prices? b. Compute the one-year return of CTech and GTech above. Use the price and dividend in year one and compute the rate of return, consider a purchase price as the current stock price. c. What are the prices of the stocks exactly 10 years from today, immediately after the dividend is paid? (Hint you need dividend in the 11th year)
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