Estimation of a stock's current price

timer Asked: Jun 18th, 2013

Question Description

A company currently pays a dividend of $2.25 per share, D0 = 2.25. It is estimated that the company's dividend will grow at a rate of 16% percent per year for the next 2 years, then the dividend will grow at a constant rate of 8% thereafter. The company's stock has a beta equal to 1.85, the risk-free rate is 7.5 percent, and the market risk premium is 5 percent. What is your estimate is the stock's current price?

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