Uptown Clothing just paid $1.50 as its annual dividend and increases its dividend by 2.5 percent each year.What will Uptown's stock price be in ten years at a discount rate of 12.25 percent?

Question

Quizplus · Accepted Answer

First, we need to find out the future value of the annual dividend after 10 years, which can be calculated as:
Annual dividend after 10 years = $1.50 x (1.025)^10 = $1.97 (rounded to two decimal places)

Next, we can use the Gordon Growth Model formula to find the expected stock price in 10 years:
Stock price = (Annual dividend x (1 + Dividend growth rate)) / (Discount rate - Dividend growth rate)
Stock price = ($1.97 x 1.025) / (0.1225 - 0.025)
Stock price = $20.19 (rounded to two decimal places)

Therefore, the best choice is C.

Uptown Clothing Just Paid $1