Final answer:
The stock price projected in five years, using the dividend growth model considering a dividend payment of $2.20, a growth rate of 4%, and a required return of 12%, is calculated to be $33.45.
Step-by-step explanation:
To calculate the price of the stock in five years (P5), given a current dividend of $2.20 with a growth rate of 4%, and a required return of 12%, we will use the dividend growth model formula:
P5 = D0 × (1 + g)^t / (r - g)
Where P5 is the price of the stock in five years, D0 is the most recent dividend payment, g is the growth rate of the dividend, t is the time in years, and r is the required return rate.
Inserting the values:
P5 = $2.20 × (1 + 0.04)^5 / (0.12 - 0.04)
Calculating this gives us:
P5 = $2.20 × 1.2166529 / 0.08 = $33.45
Therefore, the stock price projected in five years would be $33.45.