Answer:
The stock's expected price in the next 3 years is $28.77
Explanation:
Given that
Stock price (P₀) = $24.50 per share
Growth rate (g) = 5.50% per year at a constant rate = 0.055
Years (n) = 3 years
required rate of return on the stock [tex]r_s[/tex] = 9.00%.
Let the stock price in the next three years be P₃
Therefore:
[tex]P_3=P_0(1+g)^n[/tex]
Substituting values and computing:
P₃ = $24.5 × (1 + 0.055)³= $24.50 × 1.055³ = $24.50 × 1.174 = $28.77
The stock's expected price in the next 3 years is $28.77
Answer:
a. $28.77
Explanation:
SP0= $24.50, g 5.50%, r 9% SP3
The growth id dividends also applies to a growth in stock and we are already given sp at year zero we can calculate year 3 as
P3 = P0 (1+g)^n
=24.50(1+0.055)^3
=%28.77
