**Answer:**

**Price of stock today = $45.58**

**Explanation:**

<em>The price of a share can be calculated using the dividend valuation model </em>

<em>According to this model the value of share is equal to the sum of the present values of its future cash dividends discounted at the required rate of return. </em>

If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:

**Price=Do (1+g)/(k-g) **

Do - dividend in the following year, K- requited rate of return , g- growth rate

Step 1 : PV of dividend from year 1 to 3

PV = D × (1+r)^-n

D- dividend payable in a particular year

r- required rate of return

n- year

**Year PV of Dividend
**

1 2 × 1.1^1 × 1.12^(-1) = 1.96

2 2 × 1.1^2× 1.12^(-2) = 1.93

3 2 × 1.1^3 × 1.12^9-3)= 1.89

**Step 2 : PV of dividend from year 4 to infinity
**

PV (in year 3 terms) of dividend= 2 × 1.1^3× 1.05/(0.12-0.05) = 55.90

PV in year 0 terms = 55.90 × 1.12^(-3) = 39.789

Total present Value = 1.96
+1.93 +1.89 + 39.789= 45.58

**Price of stock today = $45.58**