Deere & Company (DE) has a current stock price of $83.74 and is expected to pay...
Deere & Company (DE) has a current stock price of $83.74 and is expected to pay a $2.04 dividend in one year. DE has a beta of 1.32, the expected market return is 7.5% and the risk-free rate is 3.0%. What is DE’s expected price in one year?
| A. |
$94.54 |
|
| B. |
$91.23 |
|
| C. |
$89.19 |
|
| D. |
$92.50 |
Homework Answers
Required return=risk free rate+beta*(market rate-risk free rate)
=3+1.32*(7.5-3)
=8.94%
Required return=(D1/Current price)+Growth rate
0.0894=(2.04/83.74)+Growth rate
Growth rate=0.0894-(2.04/83.74)
=0.0650388823
Hence expected price=Current price*(1+Growth rate)
=83.74*(1+0.0650388823)
=$89.19(Approx).
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