Problem:
The XYZ Company just paid a dividend of D0 = $1.50 per share, and that dividend is expected to grow at a constant rate of 5.00% for the first 2 years and then 2% per year from year 3 till forever. The company's beta is 1.1, the expected market return is 8%, and the risk-free rate is 4.00%.
Required:
Question 1: What is the company's current stock price?
Question 2: What is the expected stock price in 10 and 20 years?
Note: Show all workings.