Let us first compute "r" using the CAPM model.
r = risk free rate + (beta * market risk premium)
= 3.02% + (0.96*8.92%)
= 11.58%
D0 = $2.23. Now future dividends are shown below considering the growth rates:
(in $) | g (in %) | |
D0 | 2.2300 | |
D1 | 2.7804 | 24.68 |
D2 | 3.4666 | 24.68 |
D3 | 4.3221 | 24.68 |
D4 | 4.4704 | 3.43 |
Thus P4 = D4*(1+g)/(r-g)
= 4.4704*1.0343/(11.58% - 3.43%)
= $56.71
Thus price or value of stock = D1/(1+r) + D2/(1+r)^2 + D3/(1+r)^3 + D4/(1+r)^4 + P4/(1+r)^4
= 2.7804/1.1158 + 3.4666/1.1158^2 + 4.3221/1.1158^3 + 4.4704/1.1158^4 + 56.71/1.1158^4
= $47.85
Thus value of the stock = $47.85
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