Question

In: Finance

The current price of a stock is ?$68.36. If dividends are expected to be ?$1.00 per...

The current price of a stock is ?$68.36. If dividends are expected to be ?$1.00 per share for the next six ?years, and the required return is 6%, then what should the price of the stock be in 6 years when you plan to sell? it?

The price 5 years from now will be ?$____ . ?(Round your response to the nearest? dollar.)

Solutions

Expert Solution

P0 = PV of Cash Flows from it.

Year CF PVF @6% Disc CF
1 1 0.94339623                        0.9434
2 1 0.88999644                        0.8900
3 1 0.83961928                        0.8396
4 1 0.79209366                        0.7921
5 1 0.74725817                        0.7473
6 1 0.70496054                        0.7050
6 P6 0.70496054 0.7050*P6
P0 4.9173 + 0.7050(p6)

Given P0 = 68.36

Thus 4.9173 + 0.7050*P6 = 68.36

0.7050 * p6 = 68.36 - 4.9173

= 63.44

P6 = 63.44 / 0.7050

= 89.99


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