Question

Charles Berkeley, Inc. just paid an annual dividend of $3.60 per share on its stock. The dividends are expected to grow at a constant rate 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? Question 2 options: A. $91.71 B. $93.62 C. $95.75 D. $98.15 E. $102.57.

Answer 1

Answer:

D. $98.15

Explanation:

Price of stock formula;

Price today(P0) = $\frac{D0(1+g)}{r-g}$

D0= Current dividend

g = growth rate

r = required return

Price = $\frac{3.60(1.045)}{0.11 -0.045}$

= 3.762 /0.065

Price = 57.877

Price in 12 years (P12) = P0(1+g)

P12 = 57.877 *$1.045^{12}$

P12 =$98.152

Therefore, price of stock in 12 years will be $98.15