Consider the following three stocks: a. Stock A is expected to provide a dividend of $10 per share forever. b. Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% per year forever. c. Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20% per year for 5 years and zero thereafter. If the market capitalization rate for each stock is 10%, which stock is the most valuable?

    a. compensation of Stock A = $10/10% = $100

    b compensation of Stock B = $5/(10%-4%) = $83.33

    c. compensation of Stock C = $5/1.1 + $5*1.20/1.1^2 +$5*1.20^2/1.1^3 + $5*1.20^3/1.1^4 +$5*1.20^4/1.1^5 + ($5*1.20^5/10%)/1.1^5 = $104.51

    Stock C is most valuable