1. You are analyzing a stock that is selling for $14.00. It looks like the company will pay an $0.80 dividend for the next 3 years and then be able to increase the annual dividend by 5% per year indefinitely. If you require a 10% rate of return, will you buy the stock?
2. You are evaluating a stock and estimate it will pay the following dividends: D1 = $0.45, D2 = $0.55, and D3 = $0.65. After that, dividends are expected to grow at a constant annual rate of 4%. If you need a 10% return from this investment, will you buy the stock if it is selling for $10?