Question

What is the calculated future stock price using the formula P5 = P0(1 + g)^5, given the initial stock price (P0) of $35.25, a growth rate (g) of 5.25%, and a time period of 5 years into the future?

Answer 1

The calculated future stock price after 5 years, given an initial stock price of $35.25 and a growth rate of 5.25%, is approximately $45.72.

Step-by-step explanation:

To calculate the future stock price using the formula P5 = P0(1 + g)^5, where P0 is the initial stock price, g is the growth rate, and 5 represents 5 years, we first convert the growth rate from a percentage to a decimal. In this case, a 5.25% growth rate is equivalent to 0.0525 in decimal form. Using the provided values:

P0 = $35.25
g = 5.25%, which is 0.0525 in decimal form
n = 5 years

Now, we apply the values to the formula to find the future stock price:

Future Stock Price (P5) = $35.25 × (1 + 0.0525)^5
Future Stock Price (P5) = $35.25 × (1.0525)^5
Future Stock Price (P5) = $35.25 × 1.296089143
Future Stock Price (P5) ≈ $45.72

Therefore, the calculated future stock price after 5 years will be approximately $45.72.