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Virty [35]
3 years ago
12

What would the year 3 stock price need to be to meet your required rate of return of 13%?

Business
1 answer:
Drupady [299]3 years ago
8 0

Answer: $105.49

Explanation:

The Value of the stock today is given by;

P = \frac{D1}{1 + r} + \frac{D2}{(1+r)^2} + \frac{D3}{(1+r)^3}  + \frac{P3}{(1+r)^3}

80 = \frac{2}{1 + 0.13} + \frac{3}{(1+0.13)^2} + \frac{4}{(1+0.13)^3}  + \frac{P3}{(1+0.13)^3}

P3 = (80 * {1.13^3) - (\frac{2}{1.13} + \frac{3}{1.13^2} + \frac{4}{1.13^3})

P3 = $105.49

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$17,820

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