Answer to Question #215940 in Finance for Fady

Question

OSAC’s stock is currently selling for $40 per share . The dividend is expected to increase at a constant rate of 7.50% per year and rs, is 9.00%. What is the stock's expected price 3 years from today?

Answer 1

Calculation of the expected price of the stock in 3 years:-

Expected price of stock for 3 years $=P_0 (1+g)^3$

Where,

P₀ = Stock price = $40; growth rate (g) = 7.50%; and years in future = 3 years.

Expected price of the stock for 3 years $= \$40 (1+0.075)^3.$

Expected price of the stock for 3 years = $49.69.

Therefore, an expected price of the stock for the 3 years will be $49.69.