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    Stock Value Today Using the Beta and Growth Rate

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    Next year's dividend for ERT stock is expected to be $4.00. You expect it to be $4.00 in 2 years, also, but then you expect it to grow at an 8% annual rate forever. If the risk-free rate of interest is 1%, the expected market return is 9%, and the ERT's beta is 2.0 then what is the price of the stock, today?

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    Solution Preview

    Answer: 41.41

    First calculate the required rate of return r

    r = r f + beta (r m - r f)

    r f = 1%
    beta A= 2
    r ...

    Solution Summary

    All the calculations to find the current price of the stock described are shown in addition to the Excel sheet used to calculate them.

    $2.49

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