Dividend Growth Question

Please correct me here!

No, it is not correct. Had the dividend been growing at 4% in perpetuity after the 2 years then it would have been correct. The dividend valuation model is for dividends growing in perpetuity. If it is only growing for 2 years then you need to calculate the dividend at time 3 and time 4 and then discount them. However that would never happen in the exam - there couldn't be the case where dividends were expected to suddenly stop! :-) (There is a typing errors in the first line of your final workings. It should read PV = 20/1.15 and not 20/(1.15)^2. However you have calculated it correctly as 0.1739.

Let me rephrase the question because I didn't mean that dividend will stop after 2 years but rather mean that how can we calculate the share price of year 4. [Question] The dividend remains constant at 20c for two years but thereafter it grows at 4%. BUT we need to calculate the MV of share price of year 4 (rather than year 3 like in previous question). [Answer] Since Dividends will grow after year 2 in perpetuity DVM formula therefore becomes relevant. DVM: P2 = 20 (1.04)^2 / 0.15 – 0.04 P2 = $1.96 This gives me the market value of Year 4; And we have to discount it back to Year 2 Discount Factor; PV = 20 / (1.15)^1 = 0.1739 PV = 20 / (1.15)^2 = 0.1512 PV = 1.96 / (1.15)^2 = 1.48 Total = $1.8051 (at Po) So the Market Value of a Share Price of Year 4 would be $1.8051 TODAY (at Year 0) Is it correct NOW?

The market value of the share is indeed $1.8051 - that is correct. However that is the market value now - the PV of all future expected dividends (writing that it is the MV of a price of year 4 today makes no sense at all).