Respuesta :
Answer:
Current price = $20.50
Explanation:
Data provided in the question;
Growth rate, g = 20% = 0.2 for the 2 years
Growth rate, g' = 15% = 0.15 for the following 2 years
after 4 years annual dividend = $3
Last dividend paid, D0 = $1
Required rate of return, r = 12% = 0.12
Now,
D1 = D0 × (1 + g)
= $1 × (1 + 0.2)
= $1.2
D2 = $1 × (1 + 0.2)²
D3 = $1 × (1 + 0.2)² × (1 + 0.15)
D4 = $1 × (1 + 0.2)²  × (1 + 0.15)²
D5 = 3
Therefore,
Current price = [tex]\frac{1.2}{(1 + 0.12)}[/tex] + [tex]\frac{\$1\times(1 + 0.2)^2}{(1 + 0.12)^2}[/tex] + [tex]\frac{\$1\times(1 + 0.2)^2\times(1 + 0.15)}{(1 + 0.12)^3}[/tex] + [tex]\frac{\$1\times(1 + 0.2)^2\times(1 + 0.15)^2}{(1 + 0.12)^4}[/tex] + [tex]\frac{\frac{\$3}{0.12}}{(1+0.12)^4}[/tex]
⇒ Current price = $20.50
