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What should be the price of the stock in 5 years

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Bavarian Sausage just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock in 5 years?

a. $18.32

b. $23.33

c. $17.44

d. $22.26

ANS: B

D5 = 1.57^5 = 2.00

P5 = 2.00(1.05)/(.14-.05) = 23.33

Why is D5 equal to 2? Whats the formula of this question?

Reference no: EM132494489

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