Question

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?

Answer #1

Here,

Risk-free rate (Rfr) = 2.54%

Market risk premium (Mrp) = 9.01%

Beta (β) = 1.27

Dividend (D0) = $1.90

D0 |
Given |
= $1.90 |

D1 |
$1.90*(1+0.2078) |
= $2.29 |

D2 |
$2.29*(1+0.2078) |
= $2.77 |

D3 |
$2.77*(1+0.2078) |
= $3.35 |

Terminal Value (V3)= |
= $32.42 |

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