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Reddick Enterprises' stock currently sells for $40

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Reddick Enterprises' stock currently sells for $40.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs , is 9.00%. What is the stocks expected price 3 years from today? a. $43.75 b. $58.02 c. $47.56 d. $53.74 e. $52.79 
 

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Answer

c .

Explanation

Calculation of Stock's Expected Price 3 years from Today:

Given,

Current Stock Price= $40.50

Growth Rate = 5.5%

Price after three years = Current Stock Price*(1+Growth Rate)^Number of Periods 

= $40.50*(1+0.055)^3

= $40.50*1.1742

= $47.56

So, Stock's Expected Price 3 years from Today is $47.56

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