Connolly Co.'s expected year-end dividend is D₁ = $1.60, its required return is r_s = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years, i.e., what is $\hat { \mathrm { P } } _ { 7 }$ ?

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The correct answer is A.The expected stock price in 7 years can be calculated using the constant growth model:$$\hat { \mathrm { P } } _ { 7 } = \frac { D _ { 1 } ( 1 + g ) ^ { 7 } } { r _ { s } - g }$$where:* $\hat { \mathrm { P } } _ { 7 }$ is the expected stock price in 7 years* $D _ { 1 }$ is the expected year-end dividend* $g$ is the constant growth rate* $r _ { s }$ is the required returnPlugging in the given values, we get:$$\hat { \mathrm { P } } _ { 7 } = \frac { 1.60 ( 1 + 0.06 ) ^ { 7 } } { 0.11 - 0.06 } = 37.52$$Therefore, the expected stock price in 7 years is $37.52.

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Connolly Co $\hat { \mathrm { P } } _ { 7 }$