Question

Keidis Industries will pay a dividend of $3.55, $4.65, and $5.85 per share for each of the next three years, respectively. In four years, you believe that the company will be acquired for $53.00 per share. The return on similar stocks is 9.9 percent. What is the current stock price?
Multiple Choice

$61.72

$53.63

$51.10

$47.45

$47.82

Answer 1

Answer:

price = $47.82

Explanation:

Find the present value of each dividend at the required rate of return and sum them up to get the current price;

PV = FV /(1+r)^n

PV(D1) = 3.55/ (1.099^1) = 3.2302

PV(D2) = 4.65/ (1.099^2) = 3.8500

PV(D3) = 5.85 / (1.099^3) = 4.4072

PV(Price at t=4) = 53 / (1.099^4) = 36.3316

Price = 3.2302+2.9392+4.4072+36.3316

= 47.81897

Therefore, price = $47.82