Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent?

The worth of common stock six years from now will be $27.32.

Explanation:

First of all we have to calculate the Growth Rate of Dividends.

Growth Rate = g = (2.05 - 2) / 2 = .025

Now use this growth rate in Dividend Discount Model to calculate the price of share six years from now.

Price six years from now = [2.05 * (1.025)^6} / [.112 - .025] = 2.377 / .087 = $27.32.

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