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Answer:
$386.14
Explanation:
The computation of the price of the stock today is as follows;
But before that following calculations need to be done
Year 6 dividend = $20 × (1 + 1%)
= $20 × (1 + 0.01)
= 20.2
Now
Value at year 5 = Dividend at year 6 ÷ (required rate - growth rate )
= $20.2 ÷ (0.06 - 0.01 )
= $20.2 ÷ 0.05
= 404
Now
Price of stock = Annuity × [1 - 1 ÷ (1 + r)^n] ÷ r + FV ÷ (1 + r)^n
= $20 × [1 - 1 ÷ (1 + 0.06)^5] ÷ 0.06 + 404 ÷ (1 + 0.06)^5
= $20 × [1 - 0.747258] ÷ 0.06 + 301.892302
= $20 × 4.212367 + 301.892302
= $386.14