Question

Fowler, Inc., just paid a dividend of $2.75 per share on its stock. The dividends are expected to grow at a constant rate of 6.5 percent per year, indefinitely. Assume investors require a return of 11 percent on this stock.
a.	What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What will the price be in three years and in fifteen years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

a.current price = dividend just paid *(1+ growth rate) / (required return- growth rate)

=>2.75*(1.065) / (0.11-0.065)

=>$65.08.

b.

price in 3 years = current price *(1+growth rate )^3 =>65.08*(1.065)^3	78.61
price in 15 years = current price * (1+ growth rate)^15=>65.08*(1.065)^15	167.38