Question

a company's earnings and dividends are growing at a constant rate of 5%. last week, the company paid a dividend of $3.20. if the company's required rate of return is 13%, what should be the price of the stock three years from now? (do not round intermediate calculations, but round the final answer to two decimal places.)

Answer 1

The price of the stock three years from now will be Option B which is $63.38

Share price 3 years from now = Dividend for 4th year / (Required rate - Growth rate)

Dividend for 4th year = Current dividend * (1+Growth)^Number of years

= 3.20×(1+5%)⁴/(13%-5%)

= $63.38

So, Option B is the correct answer which is the price of the stock three years from now will be $63.38.

A stock profit is a profit paid to investors as extra offers in the organization. Stock profits are not burdened until the offers conceded are sold by their proprietor. Like stock parts, stock profits weaken the offer cost, however similarly to cash profits, they additionally don't influence the worth of the organization.

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