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?© BrainMass Inc. brainmass.com March 21, 2019, 11:48 pm ad1c9bdddf
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 = ...
The expert calculate stock prices using DDM and CAPM.