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Investment in the common stock of Keller Corp.

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You are considering an investment in the common stock of Keller Corp. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to 0.09 , The risk free rate is 5.6%, and the market risk premium is 6%. The stock's dividend is expected to grow at some constant rate g. The stock currently sells for $25 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3?).

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This solution is comprised of a detailed, step-by-step explanation and calculation to find the stock price at the end of 3 years.

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Constant Growth Valuation

You are considering an investment in the common stock of Keller Corp. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to 0.09, The risk free rate is 5.6%, and the market risk premium is 6%. The stock's dividend is expected to grow at some constant rate g. The stock currently sells for $25 a share. Assuming the ...

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