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calculating stock prices using DDM and CAPM

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So say a share of stock sells for $53 today. The beta of the stock is 1.2, and the expected return on the market is 12%. The stock is expected to pay a dividend of $1.10 in one year. If the risk- free rate is 5.5%, what will the share price be in one year?

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Solution Preview

We need two formulas for this question, the CAMP formula and the DDM formula,

CAPM: E(stock return) = Rf + beta(E(market) - Rf)

DDM: price = ...

Solution Summary

The expert calculate stock prices using DDM and CAPM.

$2.19