You are considering an investment in the common stock of Crisp's Cookware. 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 0.9. 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 P1?)© BrainMass Inc. brainmass.com June 4, 2020, 12:20 am ad1c9bdddf
We first calculate the growth rate g which is the capital gains yield - the rate at which the stock price will increase
Using the dividend discount ...
The solution explains how to calculate the market price of stock in 3 years with step-by-step calculations for ease of understanding.