A stock is expected to pay a $1.00 dividend per share. The growth rate is expected to be 4 percent. If investors demand 10 percent on this stock, what is the expected price of the stock 10 years from now?
A) $24.68
B) $22.17
C) $25.00
D) $26.93

Question

Quizplus · Accepted Answer

The correct answer is A because the expected price of the stock 10 years from now is $24.68. This is calculated using the formula:Expected price = Dividend / (Required return - Growth rate)= 1 / (0.10 - 0.04)= 1 / 0.06= $24.68

A Stock Is Expected to Pay a $1