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Please find below the answer | |
Statementshowing Computations | |
Paticulars | Amount |
P0 = D1/(ke-g) | |
Where P0 is the price | 50 |
Ke is the required return | 8.00% |
g is the growth rate | 4.50% |
D1 is dividend at end of year | ? |
50 = D1/(8%-4.5%) | |
50 = D1/(3.5%) | |
D1 = $1.75 | |
D3 = 1.75*1.045*1.045 | 1.9110 |
stock’s expected price 2 yrs from today = 1.911 /(8%-4.5%) | |
stock’s expected price 2 yrs from today = 1.911 /(3.5%) | 54.60 |
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