Homework SourseAssume that you have compiled the following information rega
Assume that you have compiled the following information regarding a stock:
What is the expected current value of the stock?
| Last dividend paid | $0.75 per share |
| Expected constant dividend growth rate | 8% |
| Current actual stock price | $14.57 per share |
| Beta coefficient | 0.88 |
| Risk-free rate of return | 5% |
| Required rate of return on the market portfolio | 15% |
Solution
required return= risk-free rate +Beta*(MArket rate- risk-free rate )
=5+0.88*(15-5)
=13.8%
Current price=D1/(Required return-Growth rate)
=(0.75*1.08)/(0.138-0.08)
which is equal to
=$13.97(Approx).
