Answered

Get reliable answers to your questions at Westonci.ca, where our knowledgeable community is always ready to help. Connect with a community of experts ready to provide precise solutions to your questions on our user-friendly Q&A platform. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform.

Reddick Enterprises' stock currently sells for $35.50 per share. 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

Sagot :

Tundexi

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.

See similar solution here

brainly.com/question/12946155

Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. Thank you for using Westonci.ca. Come back for more in-depth answers to all your queries.