Question

MINDTAP Q Search this course ter 09 End-of-Chapter Problems > nt: Brigham Chapter 09 End-of-Chapter Problems Assignment Score: 62.50% Save Submit Assignment for Grading Question of Check My Work (No more tries available) H Problem Walk-Through Problem 9-13 Constant growth You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.75 a share at the end of the year (D1-$2.75) and has a beta of 0.9. The risk-free rate is 3.3%, and the market risk premium is 6.0%. Justus currently sells for $41.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is what is Pj?) Round your answer to two decimal places. Do not round your intermediate calculations. Check My Work (No more tries available) Olo Key Submit Assignment for Grading

Answer 1

As per CAPM Ке Rf+Beta* (Rm-Rf) 0.033+0.9*(0.06) 0.087 8.70% Next year dividend Last dividend Growth rate Current price Required return Risk free return Market Preimum Price at year 3 Asper Dividend growth model Rm-Rf P3 ke (D1/PO)+g Ke-(D1/PO) 0.0870-2.75/41) 0.01992683 1.99% P3 (D1*(1+g)^3)/(Ke-g) (2.75*(1+0.019926)^3)/(0.087-0.019926) $ 43.50 Price at year 3 43.50