Patience, Inc., just paid a dividend of $2.65 per share on its stock. The divide
ID: 2705125 • Letter: P
Question
Patience, Inc., just paid a dividend of $2.65 per share on its stock. The dividends are expected to grow at a constant rate of 6.00 percent per year, indefinitely. Assume investors require an 10 percent return on this stock.
What is the current price? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)
What will the price be in five years and in fourteen years? (Do not include the dollar signs ($). Round your answers to 2 decimal places (e.g., 32.16).)
Patience, Inc., just paid a dividend of $2.65 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 10 percent return on this stock.
Explanation / Answer
Requirement 1:
Current price= (2.65x1.06)/(.1-.06)= $70.23
Requirement 2:
Five years= 70.23x1.06^5=$93.98
Fourteen years=70.23x1.06^14= $158.77