Please show me the steps to solve this problem thank you!
You expect the common stock of Lockheed Martin to pay dividends at the end of each of the next four years of $0.90, $2.20, $3.30, and $4.30. If growth is then expected to level off at a constant 5 percent and you require a 16 percent rate of return, how much are you willing to pay for this stock?
All you need to do here is to discount back to the beginning.
so: .90/1.16 + 2.2/1.16^2 + 3.3/1.16^3 + 4.3/.05/1.16^4
I have never done this (I actually was a freeloader), but applying the theory, I am most certain it should look like this.
In the fourth year, you do 4.3/.05 because it is a perpetuity, so you have to take that into account then discount it.
Let me know if you don't understand.
P.S. I looked at the other questions, and I am not able to do them on the top of my head, so I cannot help you with those.