hard · Principles of Finance valuation

In a two-stage DDM, if n = 3, g_1 = 15%, g_2 = 5%, and r = 10%, what is the price of the stock expected to be at the end of year 1 (P_1)?

1. The next dividend, D_2, discounted one period at the firm's cost of equity capital.
2. The same as the current intrinsic value computed today, P_0.
3. The terminal value, TV_3, plus the dividend received at the end of year 1.
4. The present value of all dividends from year 2 onwards, discounted back to year 1.

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