Answer: $17.42
Explanation:
Dividend at year 3, D3 = $1.50
D4 = $1.50 × 1.31 = $1.965
D5 = $1.965 × 1.31 = $2.57415
D6 = $2.57415 × 1.04 = $2.677116
P5 = D6/(r-g)
P5 = $2.677116 /(0.14 - 0.04)
= $2.677116 / 0.10
= $26.77116
Then, the the value of the stock today will be:
= 1.50/1.14³ + 1.965/1.14⁴ + (2.57415+26.77116)/1.14^5
= 1.0124573 + 1.1634377 + 15.241034
= 17.416929
= $17.42 Approximately