Patience, Inc., just paid a dividend of $3.15 per share on its stock. The divide
ID: 2659555 • Letter: P
Question
Patience, Inc., just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 6.00 percent per year, indefinitely. Assume investors require an 11 percent return on this stock.
What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
What will the price be in three years and in fifteen years? (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)
Requirement 1:What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
Requirement 2:
What will the price be in three years and in fifteen years? (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Patience, Inc., just paid a dividend of $3.15 per share on its stock. The dividends are expected to grow at a constant rate of 6.00 percent per year, indefinitely. Assume investors require an 11 percent return on this stock.
What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
Solution:
Expected Dividend (D1)= 3.15*1.06 = 3.339
Growth Rate = 6% or 0.06
Required rate of return (Re)=11% or 0.11
Current price = D1/(Re-g)
Current price = 3.339/(0.11-0.06)
Current price =$ 66.78
What will the price be in three years and in fifteen years? (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)
The price be in three years = 66.78*1.06^3
The price be in three years= $ 79.54
The price be in fifteen years = 66.78*1.06^15
The price be in fifteen years = $ 160.04
What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
Solution:
Expected Dividend (D1)= 3.15*1.06 = 3.339
Growth Rate = 6% or 0.06
Required rate of return (Re)=11% or 0.11
Current price = D1/(Re-g)
Current price = 3.339/(0.11-0.06)
Current price =$ 66.78
What will the price be in three years and in fifteen years? (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)