Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, r, is 11.50%. What is the stock's expected price 5 years from now? a. $43.93b. $51.40c. $52.27d. $35.58e. $53.59

Question

Deon Morales

Business

16 August, 14:30

Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.50% per year. The required rate of return on the stock, r, is 11.50%. What is the stock's expected price 5 years from now? a. $43.93b. $51.40c. $52.27d. $35.58e. $53.59

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Answers (1)

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Jaslene · Answer 1

Current market price (Po) = $35.25

Growth rate (g) = 4.5% 0.045

Market price 5 years from now

P5 = Po (1 + g) n

P5 = $35.25 (1 + 0.045) 5

P5 = $43.93

The correct answer is A

Explanation:

Market price 5 years from now is equal to current market price multiplied by 1 + growth rate raised to power 5.