Patience, Inc., just paid a dividend of $2.55 per share on its stock. The divide
ID: 2685410 • Letter: P
Question
Patience, Inc., just paid a dividend of $2.55 per share on its stock. The dividends are expected to grow at a constant rate of 5.50 percent per year, indefinitely. Assume investors require an 11 percent return on this stock. Requirement 1: What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).) Current price $ 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).) Three years $ Fifteen years $Explanation / Answer
current price Po = 2.55*1.055/(.11-.055) = 48.91 ================================================================================================ P3 = D4/(.11-0.055) = 2.55*(1.055^4)/(.11-0.055) = 57.45 =============================================================================================================================================== P15 = D16/(r-g) = 2.55*(1.055^16)/(.11-.055) = 109.20