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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