Now, assume that Best Buy’s current price is in equilibrium and is a constant growth stock....
Now, assume that Best Buy’s current price is in equilibrium and is a constant growth stock. What is Best Buy’s expected constant growth rate based on your CAPM return? Use price and dividend data from #6.
| Stock | Best Buy | Activision |
| Current Price | 68.40 | 55.40 |
| Estimated Price from 1 year now | 75.89 | 57.52 |
| Annual Expected Dividend (D1) | 2.00 | 0.37 |
D2=2.20 P1=75.89 Growth rate (r)=12.90%
Homework Answers
Best Buy :
Estimated price from 1 year now = Current price(1+g)
75.89 = 68.40 (1+g)
75.89/68.40 = (1+g)
(1+g) = 1.1095
g = 1.1095 -1
= .1095 or 10.95%
constant growth = 10.95%
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