Rudolf Corp.s stock price is $20 per share, and its expected year-end

QUESTION

Rudolf Corp.s stock price is $20 per share, and its expected year-end dividend is $2 a share (D1 = $2.00). The stocks required return is 15%, and the dividend is expected to grow at a constant rate forever. What is the expected price of the stock 7 years from now?
share price can be calculated with dividend growth model First of all we need to calculate Growth P0= D1 Ke “ g $20 = $2 0.15 -g By solving above equation we will have G = 5% Now¦

price after 7 year P7 = D8 ke-g D8 = 2 (1.05)(1.05)(1.05)(1.05)(1.05)(1.05)(1.05) =2.81 P7 = 2.81 0.15-0.05 P7 = $28.14

ANSWER:

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