Answer :
Answer:
The stock price 5 years from now will be 44.46
Explanation:
The stock price will increase like compound interest at the same rate as the dividends.
[tex]Stock(1+ g)^{time} = Amount[/tex]
Stock 35.25
time 5
dividend grow rate 0.0475
[tex]35.25 (1+ 0.0475)^{5} = Amount[/tex]
Amount 44.45588696
The stock price 5 years from now will be 44.46
Reasoning:
In five years, if we calcualte the gordon dividend growth model:
[tex]\frac{divends_{year5}}{return-growth} = Intrinsic \: Value[/tex]
and year 5 dividends would be:
[tex]Dividend\: (1+ g)^{5} = Divends_{year5}[/tex]
[tex]\frac{Dividend\: (1+ g)^{5}}{return-growth} = Intrinsic \: Value[/tex]
we can arrange the formula like this:
[tex]\frac{Dividend}{return-growth} \times (1+ g)^{5}= Intrinsic \: Value[/tex]
The first part is the current stock price so our formula is confirmed.
[tex]$Market Value Today \times (1+ g)^{5}= Intrinsic \: Value[/tex]