Common stock X pays a dividend of 25 at the end of the first year. with each subsequent annual dividend being 5% greater than the preceding one. John purchases the stock at a price obtained using the dividend discount model using an annual effective vield of 10%. Immediately after receiving the 10th dividend, John sells the stock for a price of P. His annual effective yield over the 10-year period was 8%. Calculate P.
b. Assuming the dividend discount model of stock prices, the duration of a stock paying an annual dividend is 51 years using an annual interest rate of i. What is i?