What would be the approximate expected price of a stock when dividends are expected to grow at a 25% rate in each of years 2 and 3,and then grow at a constant rate of 5% if the stock's required return is 13% and next year's dividend will be $4.00?
A) $67.60
B) $62.08
C) $68.64
D) $73.44

Question

Quizplus · Accepted Answer

Price = $4/1.13 + ($4 × 1.25)/1.13² + ($4 × 1.25²)/1.13³ + [($4 × 1.25² ×1.05)/(0.13 − 0.05)]/1.13³ = $68.64

What Would Be the Approximate Expected Price of a Stock