Question

The recent dividend payout by IBM was 13 dollars. IBM's dividends are expected to grow by about 7.8 percent per year. If your required rate of return is 14.5 percent, what is the expected stock price 9 years from now?

Answer 1

$381.49

Step-by-step explanation:

To calculate the stock price in 9 years from now, we can use the growing perpetuity formula but adjusted to year 9

Present value year 9 = current dividend (1 + growth rate)⁹ / (return rate - growth rate) = $13 (1.078)⁹ / (14.5% - 7.8%) = $25.56 / 6.7% = $381.49

the expected price of IBM's stock in 9 years is $381.49