Your broker has recommended that you purchase stock in National Bank & Trust, Inc. National Bank...
Your broker has recommended that you purchase stock in National Bank & Trust, Inc. National Bank & Trust recently paid its annual dividend of $16. Dividends have consistently grown at a rate of 3.50%. Analysts estimate that the stock has a beta of 1.41. The current risk-free rate is 2.60% and the market return is 11.1%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Homework Answers
Expected return = risk free rate + beta * market risk premium
= 2.6% + 1.41 * (11.1% - 2.6%)
= 14.585%
Price = dividend next year/(Required return - growth rate)
= 16*1.035/(0.14585 - 0.035)
= 149.39
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