Answer:
$8.22
Explanation:
Given:
Dividend for third year = $110 = 1.1%
Dividend for forth year = $110
Dividend for five year = $110
Increase dividend rate from 6th year = 3.2% = 0.032
Required Rate Return = 13.1% = 0.131
Dividend for the 6th year = Dividend of 5th year(1 + Increase rate) =
1.1(1+0.032) = 1.1(1.032) = $1.1352
5th year dividend price = 1.1352/(0.131 - 0.032) = 1.1352 / 0.099 = $11.4666
[tex]Present Value of the stock = 1.1/(1+0.131)^3 + 1.1/(1+0.131)^4 + 1.1/(1+0.131)^5 + 11.4666/(1+0.131)^5[/tex]
= $8.22