Theta Corp.'s stock is expected to appreciate 6% per year. If no dividends are paid out over the next 5 year and the current stock price is $28, what's the expected price in 5 years?
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A. B. C. D.B
The expected price in 5 years is 28*(1.06^5) = 37.5
To calculate the expected price of Theta Corp.'s stock in 5 years, we need to use the concept of compounding.
Given that the stock is expected to appreciate 6% per year and no dividends are paid out, we can use the formula for compound interest to find the future value of the stock:
Future Value = Present Value * (1 + Rate of Return)^Number of Periods
Here, the present value is the current stock price, which is $28, the rate of return is 6% (0.06), and the number of periods is 5 years.
Plugging these values into the formula, we get:
Future Value = $28 * (1 + 0.06)^5
Calculating the expression inside the parentheses first:
(1 + 0.06)^5 = 1.06^5 ≈ 1.338225
Now, we can substitute this value back into the formula:
Future Value = $28 * 1.338225 ≈ $37.4163
Rounding the answer to the nearest cent, we get $37.42.
Among the provided answer choices, the closest one to $37.42 is option B. Therefore, the expected price of Theta Corp.'s stock in 5 years is approximately $37.42, which corresponds to answer choice B.