A company is growing at a constant rate of 8 percent. Last week it paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of the stock three years from now? (Do not round intermediate calculations. Round final answer to two decimal places.)
A) $58.31
B) $46.29
C) $51.02
D) $42.83

Question

Quizplus · Accepted Answer

The correct answer is A because the price of the stock three years from now is $58.31. This is calculated by using the formula:```Price of stock = Dividend / (Required rate of return - Growth rate)```In this case, the dividend is $3.00, the required rate of return is 15%, and the growth rate is 8%. Plugging these values into the formula, we get:```Price of stock = $3.00 / (0.15 - 0.08) = $58.31```

A Company Is Growing at a Constant Rate of 8