Sky High Co just paid a dividend of 42 per share on its stoc

Sky High Co. just paid a dividend of $4.2 per share on its stock (D0). The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. If investors require an 10.2 percent return on Sky High Co. stock, the stock price in 4 years should be $ _________ . Round it to two decimal places, and do not include the $ sign, e.g., 23.56.

Solution

Current price=D1/(Required return-Growth rate)

=(4.2*1.05)/(0.102-0.05)

=$84.80769231

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

=$84.80769231*(1+5/100)^4

=$84.80769231*1.21550625

=103.08(Approx).