$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock, r_s, is 9.00%.What is the stock's expected price 3 years from today? A) $37.86 B) $38.83 C) $39.83 D) $40.85 E) $41.69

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Quizplus · Accepted Answer

The expected price of the stock 3 years from today can be calculated using the dividend growth model formula: $ P_0 = \frac{D_0 \times (1 + g)}{(r - g)} $, where $P_0$ is the current stock price, $D_0$ is the current dividend, $g$ is the growth rate, and $r$ is the required rate of return. However, since we're looking for the price 3 years from now ($P_3$), we need to adjust the formula to account for the growth over those 3 years: $ P_3 = P_0 \times (1 + g)^3 $.Given:- $P_0 = $35.50$- $g = 5.50\% = 0.055$- $r = 9.00\%$First, we find the future price $P_3$:$ P_3 = $35.50 \times (1 + 0.055)^3 $Calculating this gives:$ P_3 = $35.50 \times (1.055)^3 \approx $41.69 $Therefore, the expected price of the stock 3 years from today is approximately $41.69.

$3550 Per Share Is the Current Price for Foster Farms