Question

ABC company has a current stock price of $40.00 and expects to pay a dividend in...

ABC company has a current stock price of $40.00 and expects to pay a dividend in one ONE year of $1.80. The dividend is expected to grow at a constant rate of 6% annually. ABC Company has a beta of 0.95, the market is expected to return to 11%, and the risk-free rate of interest is 4%. The expected stock price two years from today is closest to:

A:$41.03

B.$43.38

C.$43.49

D. $43.94

Homework Answers

Answer #1
Computation of required rate = risk free rate + market risk premium *Beta
4%+(11%-4%)*0.95
10.650%
Price 2 year = Expected dividend 3 year/(required rate - Growth rate)
1.8*106%^2/(10.65%-6%)
$             43.49
answer =option D) $             43.49
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