Question

Company A has a current annual dividend yield of 1.8%. Its current share price is $20....

Company A has a current annual dividend yield of 1.8%. Its current share price is $20. Company A's beta is 0.8, the expected market risk premium is 6% and the risk free rate is 1.2%. What is the expected share price of company A one year from today?

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Answer #1
Annual dividend yield = 1.80%
Current price = 20
Next year dividend =
20*1.8% 0.36
Required rate = 6.00%
1.2%+6%*0.8
We can compute the growth rate now
Growh rate = Required rate - Annual dividend next year/Price today
Growth rate = 6%-0.36/20
4.200%
Price next year = Dividend in year 2 /(required rate - growth rate)
0.36*104.2%/(6%-4.2%)
20.84
Answer = 20.84
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