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The common stock of Royal Ranch House is selling for $18.11. The firm pays dividends that are expected to grow at a rate of 5.30% indefinitely. Your investment horizon is 5 years. What do you estimate the price of Royal Ranch House stock will be at that time

Answer :

The estimate of the price of Royal Ranch House stock at the end of the fifth year will be $23.45.

  • Current price of the common stock = $18.11
  • Growth rate = 5.30%
  • Time = 5 years.

Therefore, the estimate the price of Royal Ranch House stock by the fifth year will be:

= Current price × (1 + 5.30%)⁵

= $18.11 × (1 + 0.053)⁵

= $23.45

Therefore, the correct option is $23.45.

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