Reddick Enterprises' stock currently sells for $24.50 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, , is 9.00%. What is the stock's expected price 3 years from today?a. $28.77 b. $26.76 c. $24.45 d. $31.65 e. $33.66

The stock's expected price in the next 3 years is $28.77

Explanation:

Given that

Stock price (P₀) = $24.50  per share

Growth rate (g) = 5.50%  per year at a constant rate = 0.055

Years (n) = 3  years

required rate of return on the stock = 9.00%.

Let the stock price in the next three years be P₃

Therefore:

Substituting values and computing:

P₃ = $24.5 × (1 + 0.055)³= $24.50 × 1.055³ = $24.50 × 1.174 = $28.77

The stock's expected price in the next 3 years is $28.77

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