Question
In: Finance
The Muise Company paid a dividend of $2 per share in year 1, andthat dividend...
The Muise Company paid a dividend of $2 per share in year 1, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.5, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0?
Solutions
Expert Solution
According to CAPM,
Cost of equity = Rf + beta(Rm-Rf) = 4% + 1.5(5%) = 11.50%
NOW,
D1 = 2 , g = 5%
SO,
P0 = D1/(ke-g) = 2/(0.115-0.05) = 30.77
Answer : 30.77
jeff jeffy answered 2 years agoRelated Solutions
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