# The current price of the stock

Avery industries jsut paid a dividend of $2.00 per share (i.e.,D0=$2.00). analysts expect the company's dividend to grow 25% for the next 2 yrs and 15% for the following 3 years. After 5 years the dividend is expected to grow at a constant rate of 5%. the required rate of return on the company's stock is 12%. what should be the current price of the company's stock? what should the stock be selling for at the end of year 3?

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#### Solution Preview

The current price of the stock is the present value of all the future dividend payoffs from the stock.

Avery industries just paid a dividend of $2.00 per share (i.e.,D0=$2.00). The dividend is expected to grow 25% for the next 2 yrs

So payoff at the end of first year and second year is 2.00*(1+0.25) and ...

#### Solution Summary

The current price of the stock is emphasized.