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    Finding the price of a stock

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    A stock is expected to pay $2.50 dividend at the end of the year (D1=2.50). This dividend is expected to grow at a constant rate of 6% per year forever. The stocks beta is 1.2, the risk free rate is 4%, and the market risk premium is 5%. What is the expected price of the stock 8 years from now (t=8)?

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    Solution Preview

    By CAPM, we know the stock's required return rate is:
    R = Rf + Beta*Rm = 4%+1.2*5% = ...

    Solution Summary

    This solution assists with finding the price of a stock.