Question

# The next three annual dividends paid by XYZ stock are expected to be \$7.43 in one...

The next three annual dividends paid by XYZ stock are expected to be \$7.43 in one year, \$2.79 in two years, and \$3.05 in three years. The price of the stock is expected to be \$45.78 in two years. The expected annual return for the stock is 15.20 percent. What is the current price of one share of XYZ stock?

Expected Dividend in year 1(D1) = \$7.43

Expected Dividend in year 2(D2) = \$2.79

Expected Dividend in year 3(D3) = \$3.05

Price in Stock in year 2(P2) = \$45.78

Expected annual return for the stock (ke)= 15.20%

calculating the Current price of Stock:-  P0 = \$6.450 + \$2.102 + \$34.496

P0 = \$43.05

So, the current price of one share of XYZ stock is \$43.05

Note- Dividend in year 3 is included in the price of stock in year 2, thats why it is not taken.

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