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    Expected Stock Price

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    Yohe Technology's stock is expected to pay a dividend of $2.00 a share at the end of the year. The stock currently has a price of $40 a share, and the stock's dividend is expected to grow at a constant rate of g percent a year. The stock has a beta of 1.2. The market risk premium, kM - kRF, is 7 percent and the risk-free rate is 5 percent. What is the expected price of Yohe's stock 5 years from today?

    A. $51.05
    B. $55.23
    C. $59.87
    D. $64.90
    E. $66.15

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    Solution Preview

    We first find the growth rate
    Using the constant growth model
    Cost of equity ...

    Solution Summary

    The solution explains how to calculate the expected stock price in 5 years.