HomeworkLib
Question

A stock has a beta of 1.5 and is expected to pay a $2 dividend per...

A stock has a beta of 1.5 and is expected to pay a $2 dividend per share next year. The dividend is expected to grow at 1% per year. The risk-free rate is 1%, and market risk premium is 6%. What should be the fair stock price?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Required return=risk free rate+beta*market risk premium

=1+(1.5*6) =10%

Hence stock price=D1/(required return-growth rate)

=2/(0.1-0.01)

=$22.22(approx).

0 0
Add a comment
Know the answer?
Add Answer to:
A stock has a beta of 1.5 and is expected to pay a $2 dividend per...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • (Stocks) A stock with a beta of 0.52 is expected to pay a $1.39 dividend over...

    (Stocks) A stock with a beta of 0.52 is expected to pay a $1.39 dividend over the next year. The dividends are expected to grow at 1.1% per year forever. What is the stock's value per share (to the nearest cent, no $ symbol) if the risk-free rate is 0.79 and the market risk premium (i.e., the difference between the market return and the risk-free rate) is 5.71%?

  • Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the...

    Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year (D1 = $1.50); its beta is 0.75; the risk-free rate is 5.1%; and the market risk premium is 5%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $30 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3...

  • 6. The Francis Company is expected to pay a dividend of D1 = $1.25 per share...

    6. The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.70, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

  • The Francis Company is expected to pay a dividend of D1 = $1.25 per share at...

    The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 0.85, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

  • Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the...

    Oxxon Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Oxxon's current stock price? $21.62 $23.45 $25.12 $28.90 $31.90

  • Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the...

    Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the end of this year (D1 = $2.00); its beta is 0.70. The risk-free rate is 4% and the market risk premium is 4%. The dividend is expected to grow at some constant rate gL, and the stock currently sells for $48 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3...

  • Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the...

    Crisp Cookware's common stock is expected to pay a dividend of $2 a share at the end of this year (D1 = $2.00); its beta is 0.9. The risk-free rate is 5.3% and the market risk premium is 5%. The dividend is expected to grow at some constant rate, gL, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3...

  • Apple has a beta of 0.92 and just paid a dividend of 54 cents per share....

    Apple has a beta of 0.92 and just paid a dividend of 54 cents per share. Its dividends are expected to grow at a rate of 11%. If the risk-free rate is 1.8% and the market risk premium is 14%, what is the fair price of a share of Apple stock

  • AA Corporation’s stock has a beta of 8. The risk-free rate is 4.5% and the expected...

    AA Corporation’s stock has a beta of 8. The risk-free rate is 4.5% and the expected return on the market is 13.6%. What is the required rate of return on AA’s stock? The market and Stock J have the following probability distributions: Probability                          rM                            rJ 0.2                                          12%                        16% 0.3                                          8                              7 0.5                                          20                           13 Calculate the expected rates of return for the market and Stock J. Suppose you manage a $6 million fund that consists of four stocks with...

  • You find a stock with a beta of 1.4 that is expected to pay a dividend...

    You find a stock with a beta of 1.4 that is expected to pay a dividend of $3.20 and grow that dividend at 5% annually. If the risk-free rate is 3% and the expected market return is 8%, what should be the price of this stock?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT