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    estimate of the stock's current price

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    A company currently pays a dividend of $2.00 per share, It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?

    Please show me how to find the answer and the rational for it.

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    https://brainmass.com/economics/risk-analysis/estimate-of-the-stock-s-current-price-163629

    Solution Preview

    A company currently pays a dividend of $2.00 per share, It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years,
    then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?

    Step 1: To estimate the cost of equity:

    Re = ...

    Solution Summary

    Find an estimate of the stock's current price.

    $2.19