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    A stock is expected to pay no dividends for the first three years. Assuming the stock is fairly priced, what is the current price of the stock?

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    A stock is expected to pay no dividends for the first three years, i.e., D1 = $0, D2 = $0, and D3 = $0. The dividend for Year 4 is expected to be $5.00 (i.e., D4 = $5.00), and it is anticipated that the dividend will grow at a constant rate of 8 percent a year thereafter. The risk-free rate is 4 percent, the market risk premium is 6 percent, and the stock's beta is 1.5. Assuming the stock is fairly priced, what is the current price of the stock?
    Student response: Correct

    a.$ 69.31
    b.$ 72.96
    c.$ 79.38
    d.$ 86.38
    e.$100.00

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    https://brainmass.com/business/dividends-stock-repurchase-and-policy/stock-expected-pay-dividends-first-three-years-55793

    Solution Preview

    Please see the attached file.

    A stock is expected to pay no dividends for the first three years, i.e., D1 = $0, D2 = $0, and D3 = $0. The dividend for Year 4 is expected to be $5.00 (i.e., D4 = $5.00), and it is anticipated that the dividend will grow at a constant rate of 8 percent a year thereafter. The ...

    Solution Summary

    The expert examines a stock which is expected to pay no dividends for the first three years.

    $2.19

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