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Current and Expected Stock Price

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A stock is not expected to pay a dividend over the next 4 years. Five years from now the company anticipates that it will establish a dividend of $1 a share (D5=$1). Once the dividend is established, the market expects that the dividend will grow at a constant rate of 5% per year for the indefinite future. The risk-free rate is 5%, the company's beta is 1.2, and the market risk premium is 5%. The required rate of return on the company's sock is expected to remain constant. What is the current stock price?

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This solution contains calculations to aid you in understanding the current and expected stock price

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Computation of Ke
Rf= Risk free Rate= 5.00%
Km= Expected market ...

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