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In: Finance

If investors require a 20% return on CO stock, what will the price be in 5 years?

CO Corp just paid a dividend (today) of $1.00 per share on its stock. The dividends are expected to grow at a constant 10% per year indefinitely. If investors require a 20% return on CO stock, what will the price be in 5 years? (5 years from today)   

Please put your answer on the blank line on the answer sheet. Please record your answer in dollars and cents (like I did for the dividend of $1.00)

Solutions

Expert Solution

Dividend (today) $1.00
Dividend Growth Rate 10%
Return on CO stock 20%
Year 5
Dividend (after 5 years) 1.61051
Price = Dividend *(1+growth rate)/(return - growth)
16.1051

jeff jeffy answered 2 years ago
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