In: Finance
a]
intrinsic value = present value of next 8 years dividends + present value of terminal value at end of year 8
terminal value at end of year 8 = year 9 dividend / (required return - growth rate after 8 years)
required return = risk free rate + (beta * (expected market return - risk free rate))
required return = 4% + (0.84 * (7% - 4%)) = 6.52%
intrinsic value = $128.70
b]
Beta measures the sensitivity of the stock's price to changes in the overall market. In this case, the beta is 0.84. This means that for every 1% change in the overall market, the stock's price can be expected to change by 0.84%.
c]
the current dividend to yield an intrinsic value of $150 is $2.564