Lehman & Company has an annual dividend of $14. The stock has a beta of 1.36,...
Lehman & Company has an annual dividend of $14. The stock has a beta of 1.36, the risk-free rate is 2.4% and the market return is 9.9%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Homework Answers
Intrinsic value is $111.11
Explanation :- Requires rate of return as per CAPM model
= 2.4% + 1.36(9.9% - 2.4%)
= 12.6%
Intrinsic value = dividend/rate of return
= 14/12.6%
= $111.11
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