Question

Kelly Enterprises' stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?

(A) $40.17
(B) $41.20
(C) $39.83
(D) $40.85
(E) $41.69

Answer 1

stock's expected price is $44.45

Step-by-step explanation:

given data

currently sells = $35.25 per share

constant rate r = 4.75% per year = 0.0475

required rate of return = 11.50% = 0.1150

time t = 5 year

solution

we get here future value that is express as

future value = currently sells ×
`(1+r)^(t)` ..................1

put her value we get

future value = $35.25 ×
`(1+0.0475)^(5)`

future value = $44.45

so stock's expected price is $44.45