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A company currently pays a dividend of $1.25 per share (D0 = $1.25). It is estimated...

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Finance

A company currently pays a dividend of $1.25 per share (D0 =$1.25). It is estimated that the company's dividend will grow at arate of 20% per year for the next 2 years, and then at a constantrate of 6% thereafter. The company's stock has a beta of 1.1, therisk-free rate is 4%, and the market risk premium is 5%. What isyour estimate of the stock's current price? Do not roundintermediate calculations. Round your answer to the nearestcent.

Answer & Explanation Solved by verified expert
3.9 Ratings (405 Votes)
Beta of the stock 11 Market risk premium MRP 5 Riskfree rate rF 4 Cost of equity of the company can be calcuated usinf the CAPM Equation r rF MRP 4 115 95 Dividend that was paid recently D0 125 Since the Divident    See Answer
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A company currently pays a dividend of $1.25 per share (D0 =$1.25). It is estimated that the company's dividend will grow at arate of 20% per year for the next 2 years, and then at a constantrate of 6% thereafter. The company's stock has a beta of 1.1, therisk-free rate is 4%, and the market risk premium is 5%. What isyour estimate of the stock's current price? Do not roundintermediate calculations. Round your answer to the nearestcent.

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