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Expected market price

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You are thinking about buying a share of Kampfert Industries, which has a current market price of $31.60 per share. Kampfert's expects to pay a dividend of $2.37 per share next year. Your required rate of return on these types of investments is 12%. If dividends are expected to grow at a constant rate for the foreseeable future, and if your required rate of return is expected to remain at 12%, what is the expected market price per share in 5 years?

a. $39.3793
b. $41.1520
c. $44.8625
d. $45.3659
e. $48.7683

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The solution explains how to calculate the expected market price per share in 5 years.

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The market price will increase by the growth rate. Using the ...

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