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Sagot :
The stock's expected price 3 years from today is $41.70.
Given Information
Price (P) = $35.50
Growth (g) =5.50%
Required Rate of Return (Re) = 9%
- The formula for Price today is P = Do(1+g)/(Re-g)
35.50 = Do(1.055) / (9% - 5.5%)
Do = 35.50*3.5% / 1.055
Do = $1.177
The dividend 4 years from now is as follows:
D4 = (1.1777*(1.055)^4
D4 = $1.459
Price at the end of 3 years is as follows
P = D4(1+g)/(Re-g)
P = $1.459 / (9% - 5.50%)
P = 1.459/3.5%
P = $41.699
P = $41.70
Therefore, the stock's expected price 3 years from today is $41.70.
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