What is the price of a share of stock if the beta is 2, its next...

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What is the price of a share of stock if the beta is 2, its next dividend is projected to be $4, and its growth rate is expec

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Answer 1

Answer #1

Required Return = Risk-free Rate + Beta * (Market Return - Risk-free Rate)
Required Return = 8.00% + 2.00 * (16.00% - 8.00%)
Required Return = 8.00% + 2.00 * 8.00%
Required Return = 24.00%

Stock Price = Expected Dividend / (Required Return - Growth Rate)
Stock Price = $4.00 / (0.24 - 0.06)
Stock Price = $4.00 / 0.18
Stock Price = $22.22

The price of a share of stock is $22.22

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Answer 2

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