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

Quizplus · Accepted Answer

The correct answer is A because the expected stock price in 7 years is $37.52. This can be calculated using the constant growth model:$$ ilde{\mathrm{P}}_{7} = \frac{D_{1} imes (1 + g)^{7}}{r_{s} - g}$$where:* D₁ is the expected year-end dividend* g is the expected constant growth rate* r_s is the required returnPlugging in the given values, we get:$$ ilde{\mathrm{P}}_{7} = \frac{\$1.60 imes (1 + 0.06)^{7}}{0.11 - 0.06} = $37.52$$

Connolly Co P~7\tilde{\mathrm{P}}_{7}P~7​ ? A)$37

Connolly Co $\tilde{\mathrm{P}}_{7}$ ?
A)$37