Question

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?

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.**

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 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 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 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 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 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 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 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 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 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

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 8 minutes ago

asked 9 minutes ago

asked 12 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 20 minutes ago

asked 27 minutes ago

asked 36 minutes ago

asked 38 minutes ago