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1) Firm ABC is going to pay an annual dividend of $2.00 per share next year....

1) Firm ABC is going to pay an annual dividend of $2.00 per share next year. Management just announced that future dividends will increase by 2 percent annually. What is the amount of the expected dividend in year 5?

2) Firm ABC is going to pay an annual dividend of $2.00 per share next year. Management just announced that future dividends will increase by 5 percent annually in the first two years and 2 percent annually afterwards. What is the amount of the expected dividend in year 5?

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Answer #1

Expected dividend in year 5 = $2.16 2*1.0214Expected dividend in year 5 = $2.29 2*1.05^2*1.0242

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