50 per share is the current price for Foster Farms' stockThe dividend is projected to increase at a constant rate of 5.50% per year The required rate of return on the stock, rs, is 9.00% What is the stock's expected price 3 years from today?

Question

Quizplus · Accepted Answer

The expected price of the stock in 3 years can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is P3 = P0 * (1 + g)^3, where P0 is the current price, g is the growth rate, and 3 is the number of years. Substituting the given values: P3 = $50 * (1 + 0.055)^3 = $50 * 1.174 = $58.70. However, this is not directly matching any of the options, indicating a possible miscalculation or misinterpretation in the options provided. The closest option based on typical calculations would be E) $41.69, assuming a different interpretation or error in the problem setup.

50 Per Share Is the Current Price for Foster Farms