A stock with a beta of 1.2 just paid a dividend of $0.75 that is expected...

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A stock with a beta of 1.2 just paid a dividend of $0.75 that is expected...

A stock with a beta of 1.2 just paid a dividend of $0.75 that is expected to grow at 7%. If the risk-free rate is 3% and the market risk premium is 5.5%, what should be the price of the stock in five years? A. $28.85 B. $43.29 C. $30.87 D. $40.46

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Answer 1

Answer #1

Required return=risk free rate+Beta*market risk premium

=3+(1.2*5.5)=9.6%

Current price=D1/(Required return-Growth rate)

=(0.75*1.07)/(0.096-0.07)

=30.8653846

P5=Current price*(1+Growth rate)^5

=30.8653846*(1.07)^5

=$43.29(Approx)

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Answer 2

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A stock with a beta of 1.2 just paid a dividend of $0.75 that is expected...

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