Question

In: Finance

Your task is to find the value of a company stock. You have the following information:...

Your task is to find the value of a company stock. You have the following information:

a) Investors expect 5 EUR dividend next year.

b) Dividends are expected to stay constant for the next four years.

c) However, dividends are expected to start growing 5% a year starting from year 5.

d) Expected return from investments with comparable risk is 15%.

Question:

1. Based on information above, what is the fundamentally justified price of a stock?

2. You observe that the current market price is 40 EUR. What should be your investment strategy given your calculations above. Even if you were not able to estimate the price, you can still describe your course of action

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