Answer to Question #269021 in Financial Math for Ayana

Question

Building Bloc, Inc. just paid a dividend worth of Php50. It is expected to grow its dividend by 3% per year. If the market requires a rate of return of 15% on earnings, how much should the stock be selling for in 3 years?

Answer 1

Stock value in the first year;

50*3%+50=

51.5 Php

Stock value in second year;

51.5*3%+51.5=

53.045

Stock value in third year;

53.045*3%+53.045=

54.63635

Final stock price is:

54.63635*15%+54.63635=

62.8318025

62.83