A company currently pays a dividend of $2 per 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 the dividend will grow at a constant rate of 7% thereafter. The company' stock has a beta equal to 1.2 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 June 3, 2020, 11:53 pm ad1c9bdddf
Dividend at the end of Year 1, D1=D0*(1+growth rate)=2*(1+20%)=$2.40
Dividend at the end of Year 2, D2=D1*(1+growth rate)=2.40*1.20=2.88
Dividend at the end of Year 3, D3=D2*(1+growth ...
Solution describes the steps to estimate the current price of given stock.