Question

Gilmore, Inc., just paid a dividend of $3.30 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock. What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current price $ What will the price be in six years and in thirteen years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

current price=Dividend for next period/(Required return-Growth rate)

=(3.3*1.045)/(0.09-0.045)=$76.63(Approx)

Price in 6 years=Current price(1+Growth rate)^6

=$76.63(1.045)^6=$99.80(Approx)

Price in 13 years=Current price(1+Growth rate)^13

=$76.63(1.045)^13=$135.81(Approx)