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"Gettysburg Grocers’ "stock is expected to pay a year-end dividend, D1, of $2.00 per share. The dividend is expected to grow at a constant rate of 5%, and the stock has a required return of 9%. What is the expected price of the stock five years from today?

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Tundexi

Answer:

$63.81

Explanation:

Current price is computed as follows:

= Expected dividend / (required rate of return - growth rate)

= $ 2 / (9% - 5%)

= $ 50

So, the price in 5 years will be as follows:

= Current price x (1 + growth rate)^5

= $ 50 x 1.05^5

= $50 x 1.2762

= $ 63.81

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