Question

The Farmer's Market just paid an annual dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 13 percent return on the stock for the first 3 years, a 9 percent return for the next 3 years, a 7 percent return thereafter. What is the current price per share

Answer 1

The current price per share is $213.679

Step-by-step explanation:

According to the given data, in order to calculate the current price per share we would have to use the following formula:

current price per share= 5x1.05/1.13+(5x1.05^2/1.13^2)+(5x1.05^3/1.13^3)+(5x1.05^4/1.09^4)+(5x1.05^5/1.09^5)+(5x1.05^6/1.09^6)+{(5x1.05^7/[(.07-.05)1.09^3x1.13^3]}= $213.679

The current price per share is $213.679