The Starr Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. Investors require a return of 12 percent on the stock. What is the current price?

What will be the price in three years?

What will be the price in 14 years?

Last dividend = $1.85 (D0)

growth rate = 4% (g)

Current year dividend (D1) = 1.85 * (1+0.04) = $1.924

r = 12%

Current price = D1 / (r-g) = 1.924 / (0.12-0.04) = 24.05

Price in 3 years = D4 / (r-g) = D0 * (1+g) ^4 / (r-g) = 1.85*1.04^4/0.08 = $27.0529792

Price in 14 years = D14 / (r-g) = D0 * (1+g) ^15 / (r-g) = 1.85*1.04^15/0.08 = $41.647