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the rlx company just paid a dividend of $3.20 per share on its stock. the dividends are expected to grow at a constant rate of 4 percent per year indefinitely. investors require a return of 10.5 percent on the company's stock. a. what is the current stock price? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. what will the stock price be in 3 years? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. what will the stock price be in 15 years? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer :

The present stock price is $51.23.

The stock price in 3 years will be $57.63

The stock price in 15 years will be $92.27

The present value formula PV = FV/(1+i)^n states that perform price is similar to the future price divided by the sum of 1 plus interest rate per period raised to the number of time periods.

Dividend (D0) = $3.20

Growth rate (g) = 4%

Required return (r) = 10.5%

The formula to find the current stock price is:

Current stock price = [tex]\frac{D0(1 + g)}{r - g}[/tex]

Current stock price = $3.20 x ( 1 + 4%) : (10.5% - 4%)

Current stock price = $3.20 x (1,04) : (0.105 - 0.04)

Current stock price = $3.33 : 0.065 = $51.23

The stock price be in 3 years is :

$51.23 × (1.04)³= $51.23 × 1.125 = $57.63

The stock price be in 15 years is :

$51.23 × (1.04)¹⁵ = $51.23 × 1.801 = $92.27

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