You invest in XYZ stock that costs $25 and you believe that the stock will have a return of 7% over the next 5 years.
A. Draw the timeline of this investment.
B. Use the step-by-step method to calculate the price of the stock in 5 years.
C. Use the formula to calculate the price of the stock in 5 years.
D. Describe, in words, the calculator inputs to calculate the price of the stock in 5 years.
E. Imagine that you think ABC stock will be worth $100 in 3 years. Your required rate of return on a stock like ABC is 9%. Draw the time-line of this investment and calculate the maximum price that you would pay for the stock today using methods B, C, and D.