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Connolly Co.'s expected year-end dividend is D 1 = $1.60, its required return is r s = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

Respuesta :

Answer:

$37.52

Explanation:

Given:

Dividend = $1.6

Required rate of return = 11%

dividend yield rate = 6%

Computation of growth rate:

Growth rate = Required rate of return - dividend yield rate

Growth rate = 0.11 - 0.06

Growth rate = 0.05

Computation of price of 1st year:

Stock price = Dividend /  dividend yield rate

Stock price = $1.6 / 0.06

Stock price = $26.67

Computation of Price after 7 year

Price after 7 year = [tex]price of 1st year(1+g)^7[/tex]

Price after 7 year = [tex]26.67(1+.05)^7[/tex]

Price after 7 year = $37.52

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