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The Peter Inc just paid a dividend of $1.0 per share, and that dividend is expected...

The Peter Inc just paid a dividend of $1.0 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 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Peter’s current stock price, P0?

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Answer #1

P0 = D1 / [ Ke - g ]

D1 = D0(1+g)

= $ 1 ( 1 + 0.055)

= $ 1 * 1.055

= $ 1.055

Ke = Rf + Beta ( Risk Premium )

= 4% + 1.15 ( 5%)

= 4% + 5.75%

= 9.75%

P0 = D1 / [ Ke - g ]

= $ 1.055 / [ 9.75% - 5.5% ]

= $ 1.055 / 4.25%

= $ 24.82

Current Price is $ 24.82

P0 = Current Price

D1 = Expected Div after a year

D0 = Just Paid Div

Ke = Required Ret

g = Growth rat

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