JustasS

Thanks a lot for the reply. I used the same formula, however, the number doesn’t tight. It gave us next period dividend of $1.5 and next period of earnings of $5.
We can get g=ROE(1-K)=6.825%, required return r= 4%+6.5% = 10.5%, so current stock price should be d1/(r-g)=40.816 which is actually the price they calculated for next period. And they gave us the current stock price of $40. Thus, the data doesn’t seem to tight. Any explanation? Thanks.