Sorenson Corps expected yearend dividend is D1 400 its requi

Sorenson Corp\'s expected year-end dividend is D1 -$4.00, its required return is rs 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson\'s expected stock price in 7 years, i.e., what is ? a. $90.05 b. $85.36 C. $87.24 d. $76.92 e. $93.81

Solution

Espected stock price = P7 = D1*(1+g)^7/(r-g)

                                        =$4*(1+5%)^7/(11%-5%)

                                        = $93.81, Ans is option e

Required return = 11%, Dividend yield = 6%, Growth rate = 11%-6% = 5%