Anton, Inc., just paid a dividend of $3.10 per share on its stock. The dividends

Question

Anton, Inc., just paid a dividend of $3.10 per share on its stock. The dividends are expected to grow at a constant rate of 4.25 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock.

What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What will the price be in six years and in thirteen years? (Do not round intermediate calculations.Round your answers to 2 decimal places (e.g., 32.16).)

What is the current price? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Current Price = D1/(ke - g)

D1 = 3.10*(1+.0425)

ke = 9%

g = 4.25%

Current Price = 3.10*(1+.0425)/(9% - 4.25%) = $68.04

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Part B:

Price after 6 Years = Current Price*(1+g)^6 = 68.04*(1+4.25%)^6 = $87.34

Price after 13 Years = Current Price*(1+g)^6 = 68.04*(1+4.25%)^13 = $116.88

Thanks.

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