The value of the stock
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Company A is paying a current dividend of $2.09/share, with a 4% growth expectation into the future. The 3-month T-Bill, a risk-free asset, has an annual yield of 3.5%, the S&P has a 14% return, and the beta of the company is 1.5. Whats the stock's value today? if your valuation is correct, and if the stock was selling $20.31 how could you profit from it?
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Solution Summary
This solution shows how to calculate the value of the given stock.
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The value of the stock is the present value of all dividends. Since the dividends grow at a constant rate, we use the constant growth formula to find the present value
The value of stock = D1/(Required return - ...
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