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?
We first find the growth rate
Using the constant growth model
Cost of equity ...
The solution explains how to calculate the expected stock price in 5 years.