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Estimating the current price of BB stock

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BB Company pays a dividend of $4.00

The dividend expected growth rate for the three coming years : 6%
After the three years : 4%

The expected beta for BB stock 1.2
The risk free rate 3.00%
The market rate 9.00%

Find the estimated current price.

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Solution describes the steps to estimate the current price of BB stock in the given scenario.

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Risk free rate=rf=3%
Market rate=rm=9%
Beta=b=1.2
Required rate of return=r=?

r=rf+b*(rm-rf)=3%+1.2*(9%-3%)=10.20%

Current dividend=Do=$4
Growth rate for first three ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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