Incorrect answer for an question in curriculum?

CFA Level II
#1

I am confused with the answer from Curriculum as follows:

Question:

Company XYZ

A mid-sized US company in the utilities sector with a required rate of return of 10%. Peters and her team believe that because of a recent restructuring, the company is unlikely to pay dividends for the next three years. However, the team expects XYZ to pay an annual dividend of US$1.72 per share beginning four years from now. Thereafter, the dividend is expected to grow indefinitely at 4% even though the current price implies a growth rate of 6% during this same period.

If the team uses the dividend discount model, the current intrinsic value of Company XYZ stock would be closest to:

  1. US$19.58
  2. US$20.36
  3. US$21.54

Answer

C is correct. The current value of XYZ stock would be calculated as follows:

V0 = [P3/(1 + r)3], where P3 = D4/(r – g).

Given D4 = 1.72, r = 10%, and g = 4%,

V0 = [1.72/(0.10 – 0.04)]/(1.10)3 = US$21.54.

Why they just discount for 3 years? I think answer B is correct?

#2

For how many years would you discount P3 to get to P0?

#3

nothing is wrong there

#4

Why would you discount back 3 periods a cash flow dated P4 (4 periods from now)?
The most rational answer I would give is:
D4(1+g) / (r-g)(1+r)
That’s because the dividend is bound to grow indefinitely by g.
So: 1.72(1.04) / (1.1^4 * 0.06) = 20.36

Or there might be something weird with the wording of the paragraph

#5

P3 is the present value of all future dividends starting with D4; the focal date for the calculation is time 3. This would require calculating D4 = (1+g)*D3, but they already tell you D4 is 1.72.