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VALUATION OF A CONSTANT GROWTH STOCK A stock is expected to pay a dividend of $3.00...

VALUATION OF A CONSTANT GROWTH STOCK

A stock is expected to pay a dividend of $3.00 at the end of the year (i.e., D1 = $3.00), and it should continue to grow at a constant rate of 7% a year. If its required return is 13%, what is the stock's expected price 3 years from today? Round your answer to two decimal places. Do not round your intermediate calculations.

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Answer #1

Price = dividend next year/(Required return - growth rate)

=>

Price 3 years from now = D4/(Required return - growth rate)

= 3*1.07^3/(0.13-0.07)

= 61.25

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