uestioh 3 ( 10) G Save & Ext. value: 10.00 points Gilmore, Inc., just paid a div
ID: 2783672 • Letter: U
Question
uestioh 3 ( 10) G Save & Ext. value: 10.00 points Gilmore, Inc., just paid a dividend of $2.50 per share on its stock. The dividends are expected to grow at a constant rate of 5.25 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock. What will the price be in six years and in thirteen years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Price Six years Thirteen years Hints References eBook&Resources; Hint#1Explanation / Answer
Recent Dividend Paid = 2.50, Growth Rate = 5.25%, Required Return = 9%
Next year's dividend = 2.50 * (1+5.25%) = 2.63125
Price of stock at present = Dividend Next year/(Required Return - Growth Rate) = 2.63125 /(9% - 5.25%) = 70.1667 [rouded to 4 decimals]
So, Price of stock in 6 years = Price of Stock at present * (1+Growth Rate)6 = 70.1667 * (1 + 5.25%)6 = 95.38 [rouded to 4 decimals]
So, Price of stock in 13 years = Price of Stock at present * (1+Growth Rate)13 = 70.1667 * (1 + 5.25%)13 = 136.46 [rouded to 4 decimals]
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.