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Marta_Voda [28]
3 years ago
5

Berkeley, Inc. just paid an annual dividend of $2.60 per share on its stock. The dividends are expected to grow at a constant ra

te of 4.5 percent per year, indefinitely. If investors require an 11 percent return on this stock, what will the price be in 12 years?
66.46

67.84

69.16

70.89

74.08
Business
1 answer:
sertanlavr [38]3 years ago
5 0

Answer:

Option (D) is correct.

Explanation:

Dividend in year 12:

= D0\times(1 + g)^{n}

= 2.60\times(1 + 0.045)^{12}

      = $2.60 × 1.695881

      = $4.409292

Price of the stock in 12 years:

P_{12}=\frac{D_{12}\times(1+g) }{r_{e}-g }

P_{12}=\frac{4.409292\times(1+0.045) }{0.11-0.045 }

P_{12}=\frac{4.60771}{0.065}

                 = $70.89

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