Answer:
(a) $34.4
(b) $38.70(Approx).
(c) $61.9524
Explanation:
(a) Current price:
[tex]=\frac{D1}{Required\ return-Growth\ rate}[/tex]
[tex]=\frac{2.15\times(1+0.04)}{0.105-0.04}[/tex]
[tex]=\frac{2.15\times 1.04}{0.105-0.04}[/tex]
= $34.4
We use the formula:
[tex]A=P(1+\frac{r}{100} )^{n}[/tex]
where,
A = future value
P = present value
r = rate of interest
n = time period
(b) [tex]A=P(1+\frac{r}{100} )^{n}[/tex]
[tex]A=34.4(1.04 )^{3}[/tex]
= 34.4 × 1.124864
= $38.6953
= $38.70(Approx).
(c) [tex]A=P(1+\frac{r}{100} )^{n}[/tex]
[tex]A=34.4(1.04 )^{15}[/tex]
= 34.4 × 1.80094351
= $38.6953
= $61.9524