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25 August, 04:32

A stock has dividends that are expected to grow at 5% per year forever, if the price of the stock is $48.58 today, what will be the stock's price in 5 years? (Enter only numbers and decimals in your response. Round to 2 decimal places for your answer.)

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  1. 25 August, 06:50
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    Growth rate (g) = 5% = 0.05

    Current market price (Po) = $48.58

    The stock's price in 5 years

    P5 = Po (1 + g) n

    P5 = $48.58 (1 + 0.05) 5

    P5 = $48.58 (1.05) 5

    P5 = $62.00

    Explanation:

    The stock's price in 5 years time is a function of current market price subject to 5 years growth.
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