Question

is this answer correct. if not please tell me what i did wrong

4 The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.65, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, Po? Do not round intermediate calculations. 4 POINTS a. $10.08 Rate of return = Ret 6 * Rue $11.72 c. $13.83 .04+1,65 X.05 3.122) d. $12.66 Pos Dividend q +G)/(kr - Gland e. $13.60 .75861-.055)/S.1225-055)

Answer 1

ANSWER = b. $11.72

D₀ = 0.75

g = 5.5% = 0.055

b = 1.65

R_m - R_f = 5%

R_f = 4%

Rate of return as per CAPM,

r = R_f + b*(R_m - R_f)

r = 4 + 1.65*5

r = 4 + 8.25

r = 12.25

Po= Do(1+9) r-9

Po = 0.75(1 + 0.055) 12.25 – 5.5

0.79125 Po = 6.75

Po= 0.1172

P₀ = $11.72