What would be the stock value?

label Mathematics
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what would be the stock value if the growth rate is 10%, but pcns beta falls to:

               1.0?

0.5?

12.9

Nov 18th, 2015

Thank you for the opportunity to help you with your question!

(Taking Growth (g) 10% and beta 1.0)

Ke = RF + MRP*B

Ke = 0.06+0.06*1.0 = 0.12 = 12%

Price = D0*(1+g)/Ke

Price = 2(1.10)/0.12 = $18.33

(ii)

(Taking Growth (g) 10% and beta 0.5)

Ke = RF + MRP*B

Ke = 0.06+0.06*0.5 = 0.09 = 9%

Price = D0*(1+g)/Ke

Price = 2(1.10)/0.09 = $24.44


Please let me know if you need any clarification. I'm always happy to answer your questions.
Nov 18th, 2015

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