Plimpton Inc. just paid a dividend of $1.33. Its stock has a dividend growth rate of 7.6% and a required return of 12.21%. What is the current stock price if we anticipate dividends stopping in 10 years?

A) $31.04
B) $21.03
C) $11.92
D) $10.64

Answer: D
Explanation: D) The price is given by multiplying two components (see Equation 7.8 in the text).
The first component is = = = $31.043.
The second component is 1 - = 1 - = 1 - 0.95891610 = 0.342634.
Thus, price = $31.043 × 0.342634 = $10.6364, or about $10.64.