Question

$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today

Answer 1

Answer:

$41.69

Explanation:

Calculation for stock's expected price 3 years from today

Using this formula

P3 = P0(1 + g)^Years in the future

Where,

Stock price=P0=$35.50

Growth rate=g=5.50%

Years in the future=3

Let plug in the formula

P3 = $35.50(1 +0.055 )^3

P3=$35.50(1.055)^3

P3 =$35.50(1.174241375)

P3=$41.69

Therefore stock's expected price 3 years from today will be $41.69