Respuesta :
Answer:
a)
$34.4
b)
$37.20
c) $59.57
Explanation:
Given:
Dividend paid = $2.15
Growth rate = 4% = 0.04
Required return = 10.5% = 0.105
Now,
a) Present value = [tex]\frac{\textup{Dividend paid}\times\textup{(1 +growth rate)}^n}{\textup{(Required return-Growth rate)}}[/tex]
for the current price n = 1
thus,
Current price = [tex]\frac{\textup{Dividend paid}\times\textup{(1+growth rate)}^n}{\textup{(Required return-Growth rate)}}[/tex]
= [tex]\frac{\textup{2.15}\times\textup{(1 +0.04)}^1}{\textup{(0.105-0.04)}}[/tex]
= $34.4
b) Price in 3 years
i.e n = 3
= [tex]\frac{\textup{Dividend paid}\times\textup{(1 +growth rate)}^n}{\textup{(Required return-Growth rate)}}[/tex]
= [tex]\frac{\textup{2.15}\times\textup{(1 +0.04)}^3}{\textup{(0.105-0.04)}}[/tex]
=
$37.20
c) Price in 15 years
i.e n = 15
= [tex]\frac{\textup{Dividend paid}\times\textup{(1 +growth rate)}^n}{\textup{(Required return-Growth rate)}}[/tex]
= [tex]\frac{\textup{2.15}\times\textup{(1 +0.04)}^{15}}{\textup{(0.105-0.04)}}[/tex]
= $59.57
