Question

A stock has dividends that are expected to grow at 5% per year forever, if the price of the stock is $48.58 today, what will be the stock's price in 5 years? (Enter only numbers and decimals in your response. Round to 2 decimal places for your answer.)

Answer 1

Answer:

Growth rate (g) = 5% = 0.05

Current market price (Po) = $48.58

The stock's price in 5 years

P5 = Po(1 + g)n

P5 = $48.58(1 + 0.05)5

P5 = $48.58(1.05)5

P5 = $62.00

Explanation:

The stock's price in 5 years time is a function of current market price subject to 5 years growth.