Question

The risk-free rate is 2.29% and the market risk premium is 6.94%. A stock with a...

The risk-free rate is 2.29% and the market risk premium is 6.94%. A stock with a β of 1.50 just paid a dividend of $2.65. The dividend is expected to grow at 23.33% for three years and then grow at 4.25% forever. What is the value of the stock?

Homework Answers

Answer #1

Value of the stock =
Re = Rf + (Rm-Rf )*beta
Re = 2.29 + (6.94)*1.5
Re = 12.7%
Enter the stroke in the financial calculator in Cashflow mode-
C1 = 2.65
C2 = 3.268 ( dividend grow at 23.33% i.e 2.65 + (2.65 *23.33%))
C3= 4.030 (dividend grow at 23.33%)
C4 = 4.97 + 61.30 = 66.27
I = 12.7
NPV = 48.82
(4.97 + (4.97*4.25%) = 5.18) , after 3 years dividend grow at 4.25% forever
terminal value = 5.18 / (0.127 - 0.0425)
Terminal value = 61.30
(dividend grow at 23.33% and then grow 4.25% forever)

Value of the stock = 48.82

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

Do give a thumbs up if you find this helpful.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The risk-free rate is 2.29% and the market risk premium is 9.17%. A stock with a...
The risk-free rate is 2.29% and the market risk premium is 9.17%. A stock with a β of 1.14 just paid a dividend of $1.02. The dividend is expected to grow at 23.43% for five years and then grow at 4.57% forever. What is the value of the stock?
The risk-free rate is 1.83% and the market risk premium is 7.31%. A stock with a...
The risk-free rate is 1.83% and the market risk premium is 7.31%. A stock with a β of 1.50 just paid a dividend of $1.78. The dividend is expected to grow at 20.80% for five years and then grow at 4.03% forever. What is the value of the stock?
Part 1: The risk-free rate is 3.53% and the market risk premium is 6.15%. A stock...
Part 1: The risk-free rate is 3.53% and the market risk premium is 6.15%. A stock with a β of 0.88 just paid a dividend of $2.36. The dividend is expected to grow at 21.73% for three years and then grow at 4.48% forever. What is the value of the stock? Part 2: The risk-free rate is 3.35% and the market risk premium is 9.06%. A stock with a β of 0.98 just paid a dividend of $2.28. The dividend...
The risk-free rate is 2.59% and the market risk premium is 8.75%. A stock with a...
The risk-free rate is 2.59% and the market risk premium is 8.75%. A stock with a β of 1.32 just paid a dividend of $2.52. The dividend is expected to grow at 21.52% for three years and then grow at 3.06% forever. What is the value of the stock?
The risk-free rate is 3.26% and the market risk premium is 5.26%. A stock with a...
The risk-free rate is 3.26% and the market risk premium is 5.26%. A stock with a β of 1.69 just paid a dividend of $1.09. The dividend is expected to grow at 22.69% for three years and then grow at 4.62% forever. What is the value of the stock?
The risk-free rate is 3.32% and the market risk premium is 7.42%. A stock with a...
The risk-free rate is 3.32% and the market risk premium is 7.42%. A stock with a β of 1.18 just paid a dividend of $2.18. The dividend is expected to grow at 20.43% for three years and then grow at 4.99% forever. What is the value of the stock?
The risk-free rate is 2.69% and the market risk premium is 8.23%. A stock with a...
The risk-free rate is 2.69% and the market risk premium is 8.23%. A stock with a β of 1.29 just paid a dividend of $2.04. The dividend is expected to grow at 24.18% for three years and then grow at 4.18% forever. What is the value of the stock?
The risk-free rate is 3.67% and the market risk premium is 5.74%. A stock with a...
The risk-free rate is 3.67% and the market risk premium is 5.74%. A stock with a β of 1.37 just paid a dividend of $2.57. The dividend is expected to grow at 22.77% for three years and then grow at 3.34% forever. What is the value of the stock?
The risk-free rate is 2.54% and the market risk premium is 9.01%. A stock with a...
The risk-free rate is 2.54% and the market risk premium is 9.01%. A stock with a β of 1.27 just paid a dividend of $1.90. The dividend is expected to grow at 20.78% for three years and then grow at 3.42% forever. What is the value of the stock?
The risk-free rate is 3.59% and the market risk premium is 6.91%. A stock with a...
The risk-free rate is 3.59% and the market risk premium is 6.91%. A stock with a β of 0.93 just paid a dividend of $1.71. The dividend is expected to grow at 21.46% for three years and then grow at 4.38% forever. What is the value of the stock?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT