You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend...
You are considering buying common stock in Grow On, Inc. The firm yesterday paid a dividend of $5.20. You have projected that dividends will grow at a rate of 10.0% per year indefinitely. The firm's beta is 2.30, the risk-free rate is 7.7%, and the market return is 10.4%. What is the most you should pay for the stock now?
|
$146.29 |
|
|
$132.99 |
|
|
$37.38 |
|
|
$41.12 |
|
|
$159.83 |
Homework Answers
Required return=risk free rate+beta*(market rate-risk free rate)
=7.7+2.3*(10.4-7.7)
=13.91%
Current price=D1/(Required return-Growth rate)
=(5.2*1.1)/(0.1391-0.1)
=$146.29(Approx).
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