(Q. 14 IN B) WHAT WOULD BE THE PRICE OF A STOCK TODAY WHEN DIVIDEN...

19. (Q. 14 in B) What would be the price of a stock today when dividends are

expected to grow at a 25 percent rate for three years, then grow at a constant

rate of 5 percent forever, if the stock's required rate of return is 13 percent and

next year's dividend will be $4?

A) $61.60

B) $62.08

C) $68.64

D) $79.44

Answer C

2

$4.00(1.25)

$4.00(1.25) (1.05)

$4.00

+

+

+

−

3

.13 .05

(1.13)

P

o

=

$5.00

$6.25