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ou expect a share of stock to pay dividends of $1.30, $1.55, and $1.60 in each of the next 3 years. You believe the stock will sell for $22.00 at the end of the third year.a. What is the stock price if the discount rate for the stock is 20%

Respuesta :

Cricetus

Answer:

The stock price will be "$15.80".

Explanation:

According to the question,

Div 1,

= 1.30

Div 2,

= 1.55

Div 3,

= 1.60

P1 = 22

Now,

The current stock price will be:

Po = [tex]\frac{Div\ 1}{(1+discount \ rate)} +\frac{Div\ 2}{(1+discount \ rate)^2} +\frac{Div \ 3+P1}{(1+discount \ rate)^3}[/tex]

By putting the values, we get

    = [tex]\frac{1.30}{1.20} +\frac{1.55}{(1.20)^2} +\frac{(1.60+22)}{(1.20)^3}[/tex]

    = [tex]1.08+1.07+13.65[/tex]

    = [tex]15.80[/tex] ($)