Reddick Enterprises' stock currently sells for $35.50 per share. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today? $37.86 $38.83 $39.83 $40.85 $41.69

E. $41.69

Explanation:

We know,

Value of stock () = [In case of constant growth model]

= Next year or expected dividend

= required rate of return

g = growth rate = 5.50%

However, as there is no information regarding expected dividend, we will use the alternative formula to calculate the stock's expected price 3 years from today.

= ×

Here, current stock price, = $35.50

Therefore, = $35.50 ×

= $35.50 × 1.1742

Stock's expected price 3 years from now = $41.69 (rounded to two decimal places)

Therefore, option E is the answer.

a.