Cost of equity = Risk free rate + beta * market risk
premium
= 4.1% + 0.9 * 4.5%
= 4.1% + 4.05%
= 8.15%
Growth rate = Ke - (D1 / P0)
= 8.15% - ($2.25 / $40)
= 8.15% - 5.625%
= 2.525%
P3 = P0 * (1 + g)^3
= $40 * (1 + 2.525%)^3
= $40 * 1.077678786
= $43.11
P3 = $43.11
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