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Answer :
Based on the calculations using the dividend discount model, the stock price today should be $1.9607. Therefore, the correct answer is not provided in the options given.
The stock price today can be determined using the dividend discount model (DDM). The DDM calculates the present value of future dividends to find the intrinsic value of a stock.
To calculate the stock price, we need to estimate the future dividends. We know that the dividend just paid is $1, and the growth rate of dividends for the next two years is 1%.
First, we calculate the dividends for the next two years:
Year 1 dividend = $1 * (1 + 1%) = $1.01
Year 2 dividend = $1.01 * (1 + 1%) = $1.0201
Next, we calculate the present value of these dividends using the required return on equity of 2%:
Present value of Year 1 dividend = $1.01 / (1 + 2%) = $0.9902
Present value of Year 2 dividend = $1.0201 / (1 + 2%)^2 = $0.9705
Finally, we sum up the present value of the dividends to find the stock price today:
Stock price today = Present value of Year 1 dividend + Present value of Year 2 dividend = $0.9902 + $0.9705 = $1.9607
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