Question

Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that...

Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that the company will have a Beta of 1.2. You know that Facebook just gave a dividend of $4.00 per share. You anticipate the dividend to grow at a rate of 10% per year. The risk-free rate is 2% and the average return of the market is 13%. Expected Return= $15.20

What is the expected price TODAY of Facebook’s stock?

In two years, you anticipate Facebook to have a price of $_______ per share.

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Answer #1
Price after 2 year = Expected dividend in year 3/(required rate - Growth rate)
Expected dividend in year 3 = 5.324
4*110%^3
Required rate = 15.20%
Growth rate = 10%
Price after 2 year= $ 102.38
5.324/(15.2%-10%)
Answer = $ 102.38
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