Question

1. Sales of printed media have declined during COVID 19. Analysists predict that earnings (and dividends) will see growth in this industry, reduced to 5% annually, for the foreseeable future. Shareholders require an 11% annual return and the company just paid a $2.00 annual dividend. What will the price of the company’s stock in 3 years?
   1. $37.96
   2. $40.52
   3. $38.59
   4. $29.58
   5. $28.63

Answer 1

P3 = D0(1 + g)^4 / (r - g)

P3 = $2.00(1.05)^4 / (0.11 - 0.05)

P3 = $40.52