Question

Reddick Enterprises' stock currently sells for $50.00 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, Is. is 9.00%. What is the stock's expected price 3 years from today? 

$71.63 $68.69 $58.71 $71.04 $61.65

Answer 1

Answer : 58.71

Given P₀ = $ 50

Required return = 9 %

Constant growth = 5.5%

D₁ = P₀ * ( Rs - g) = 50 ( 9 -5.5 ) % = 1.75.

Required P₃

P₃ = D₄ / ( R_s - g).

D₄ = 2.055

P3 = 2.055 / ( 9 - 5.5 ) % = 58.71