Last year's dividend (D0) was$3.20per share. The constant growth in dividends=6.25%. Required return=12%. |
Requirement 1: |
What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Current price | $ |
Requirement 2: |
What will the price be four years from now? sixteen years? Hint: recall the price grows at the constant growth rate of dividends. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
Four years | $ |
Sixteen years | $ |
Solution:
D0 =$3.20
Growth rate (g)= 6.25%
D1= 3.20*(1+0.0625)= $3.4
Required return ( r) = 12%
Current price ( P0) = D1/(r- g)
P0 = 3.40/(0.12 - 0.0625)
P0 = $59.13
Current price = $59.13
Price be four years from now ( P4) = 59.13*(1.0625)^4= $75.36
Price be 16 years from now ( P16) = 59.13*(1.0625)^16= $155.98
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