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 $\tilde { \mathrm { P } } _ { 7}$ ?

Question

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The correct answer is A.The expected stock price in 7 years can be calculated using the constant growth dividend discount model:$$\tilde { \mathrm { P } } _ { 7} = \frac { D _ { 1} \times ( 1 + g ) ^ { 7} } { r _ { s} - g }$$where:* $\tilde { \mathrm { P } } _ { 7}$ is the expected stock price in 7 years* D₁ is the expected year-end dividend* g is the constant growth rate* r_s is the required returnSubstituting the given values into the formula, we get:$$\tilde { \mathrm { P } } _ { 7} = \frac { 1.60 \times ( 1 + 0.06 ) ^ { 7} } { 0.11 - 0.06 } = 37.52$$Therefore, the expected stock price in 7 years is $37.52.

Connolly Co P~7\tilde { \mathrm { P } } _ { 7}P~7​

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