Apple Inc, just paid a dividend of $1

Finance Dec 23, 2020

Apple Inc, just paid a dividend of $1.90 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 10 percent on the company's stock. What will the stock price be in three years? 59.97 62.87 65.00 67.00 69.54

Expert Solution

We will first find the stock price today. Using the gordon growth model,

V0 = D0 (1+g)/Ke-g

V0 = $1.90 (1.06)/0.10-0.06

=$50.35

V3 = V0 (1+g)^3

= $50.35(1.06)^3 = $59.97

Answer = $59.97

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