A Firm Is Expected to Pay a Dividend of $2

Multiple Choice

A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year. Financial analysts believe the stock will be at their price target of $125.00 in two years. Compute the value of this stock with a required rate of return of 15%.

A) $78.34
B) $81.05
C) $87.13
D) $99.09