As per CAPM |
expected return = risk-free rate + beta * (Market risk premium) |
Expected return% = 3 + 1.2 * (5.5) |
Expected return% = 9.6 |
Required rate= | 9.60% | ||||||
Year | Previous year dividend | Dividend growth rate | Dividend current year | Horizon value | Total Value | Discount factor | Discounted value |
1 | 1.25 | 22.00% | 1.525 | 1.525 | 1.096 | 1.3914 | |
2 | 1.525 | 22.00% | 1.8605 | 1.8605 | 1.201216 | 1.54885 | |
3 | 1.8605 | 22.00% | 2.26981 | 2.26981 | 1.316532736 | 1.72408 | |
4 | 2.26981 | 22.00% | 2.7691682 | 28.846 | 31.6151682 | 1.442919879 | 21.91055 |
Long term growth rate (given)= | 0.00% | Value of Stock = | Sum of discounted value = | 26.57 | |||
Where | |||||||
Current dividend =Previous year dividend*(1+growth rate)^corresponding year | |||||||
Total value = Dividend + horizon value (only for last year) | |||||||
Horizon value = Dividend Current year 4 *(1+long term growth rate)/( Required rate-long term growth rate) | |||||||
Discount factor=(1+ Required rate)^corresponding period | |||||||
Discounted value=total value/discount factor |
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