a company currently pays a dividend of $2 per share, D0 = 2. It is
estimated that the company's...

Question

a company currently pays a dividend of $2 per share, D0 = 2. It is 
estimated that the company's dividend will grow at a rate of 20% percent
 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 percent, and the market risk premium is 4 
percent. What is your estimate is the stock's current price? PLEASE SHOW WORK AND EXPLAIN ANSWER

Robert · Accepted Answer

A company currently pays a dividend of $2 per share, D0 = 2. It is estimated that the company's dividend will 
grow at a rate of 20% percent 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 percent, and the market 
risk premium is 4 percent. What is your estimate is the stock's current price? PLEASE SHOW WORK AND 
EXPLAIN ANSWER 
Solution: 
Step 1:

a company currently pays a dividend of $2 per share, D0 = 2. It is estimated that the company's dividend will grow at a rate of 20% percent per year for the next 2 years, then the dividend will grow...

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