Answer:
Price of the stock at the end of three years =$34,27
Explanation:
Price of the stock today = [tex]\frac{D1}{(1+ke)^1}+\frac{D2}{(1+ke)^2}+\frac{D3}{(1+ke)^3}+\frac{P3}{(1+ke)^3}[/tex].
Where D1 is the total dividend earned in year 1 =$0.2*4=$0.8
D1=D2=D3=$0.8
therefore, from the given information
[tex]$22.60=\frac{0.8}{(1+0.18)^1} + \frac{0.8}{(1+0.18)^2} +\frac{0.8}{(1+0.18)^3} + \frac{P3}{(1+0.18)^3}[/tex].
Solve for P3, which is the price of the stock at the end of three years =$34,27.
