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 2, 2020, 3:22 am ad1c9bdddf
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 ...
In this solution, we estimate a stock's current price given a set of data.