Equity ValuationSchweserMistake or Correct? 2010, following, expected, problem

Kiakaha

Does any else have a problem with the following questions in Schweser 2010 book 4?
Page 225
Questions 16, 17 and 26.
I have a problem with the solutions provided.
16. Assume that a stock is expected to pay dividends at the end of year 1 and year 2 of $1.25 and $1.56 respectively. Dividends are expected to grow at the rate of 5% thereafter.
Assuming that Ke is 11%, the value of the stock is closest to which of the following?
A. $22.3
B. $23.42
C. $24.55
17 and 26 are also similar, check them out and lemme hav your thoughts please

jim8z3

Well, as you might have noticed, your answer is not one of the choices.
I would have thought you’d discount d2 by (1+ke)^2 and d3 by (1+ke)^3 though.
Let’s hope someone can really get a handle on this…

ASSet_MANagemen

ans is 24.55
CF1=1.25
P2 = 1.56*1.05/(0.110.05)=27.3
CF2=1.56+27.3=28.86
Use CF function, I=11% 24.55 Choice C

fishmarket

Agree with cpk123
PV for yr 1 = 1.13,
PV for yr 2 = (1.56+27.3)*0.8116= 23.42
Total PV = 24.55
Ans is C

sdada

OMG…
how can i do such an idiotic mistake?!
answer c is correct. i didnt PV the d1 and d2 CFs in my earlier post..

Iginla2011

Thanks guys;cpk123 and supersunny…gr8…i got it now…and i have the benefit of understanding it from two different perspectives…good…thanks y’all