Question

Really need help, 2 decimal places

"The risk-free rate is 2.82% and the market risk premium is 7.12%. A stock with a β of 1.53 just paid a dividend of $2.04. The dividend is expected to grow at 24.67% for three years and then grow at 4.66% forever. What is the value of the stock?"

Answer 1

B54 X V fr =+B53*1.0466 E F Required Return (1) Rf+BxRp A B 50 51 D1 $ 2.54 52 D2 3.17 53 D3 3.95 54 04 IŚ 55 Share price at year 3 $ 43.66 56 4.14/(13.71%-4.66%) C D PVIF @ 13.71% Present value 0.879 $ 2.24 0.773 $ 2.45 0.680 $ 2.69 Here, 4.14 | 0.680 $ 29.69 Risk free rate of return (RF) Beta of the stock (B) Market risk premium (Rp) 2.82% 1.53 7.12% 57 Value of the stock $ 37.07 Required Return (r) 13.71% 2.25%+1.25x7.09%

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