Answer:
The current price is $34.40
The price be in three years is $38.70
The price in 15 years is $61.95
Explanation:
In this question, we apply the Gordon model which is shown below:
= Next year dividend ÷ (Required rate of return - growth rate)
where,
Current year dividend
For one year
= $2.15 × (1 + 4%
)
= $2.15 × 1.04
= $2.236
The other items rate would remain the same
Now put these values to the above formula
So, the value would equal to
= 2.236 ÷ (10.5% - 4%)
= $34.40
The price is three years would be
= $34.40 × (1.04) ^ 3 years
= $34.40 × 1.124864
= $38.70
The price is 15th years would be
= $34.40 × (1.04) ^ 15 years
= $34.40 × 1.8009435055
= $61.95
