A stock is expected to pay $ 1.55 per share every year indefinitely and the equity cost of capital for the company is 8.8 %. What price would an investor be expected to pay per share ten years in the future?

The price an investor would be expected to pay per share ten years in the future is $17.61

Explanation:

P10 = [D1 * (1 + g) ^n] / (k - g)

Where:

P10 is the expected share price after ten years

D1 is the expected dividend for year 1 = $ 1.70

g is the dividend growth rate per year but we know that dividend is expected to be constant, g = 0

k is the cost of capital for the company = 8.2%

n is the number of years to calculate share price = 10

P10 = $ 1.55 * (1 + 0%) ^10 / (0.088 - 0)

= $ 1.55/0.088

= $17.61

Therefore, The price an investor would be expected to pay per share ten years in the future is $17.61