Explore BrainMass
Share

Explore BrainMass

    Financial Management Question: A company currently pays a dividend of $2per share(D0= $2).

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A company currently pays a dividend of $2per share(D0= $2). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company 's stock has a beta of1.2, the risk free rate is 7.5%,and the market risk premium is 4%. What is your estimate of the stock's current price?

    © BrainMass Inc. brainmass.com October 10, 2019, 5:04 am ad1c9bdddf
    https://brainmass.com/business/accounting-for-corporations/financial-management-question-determining-current-stock-price-490861

    Solution Preview

    To calculate this question, we need two formulas,

    The Dividend Discount Model, which says that price = D0/(required return - growth rate), and

    the CAPM, which says ...

    Solution Summary

    In this solution, we estimate a stock's current price given a set of data.

    $2.19