CCV Corporation has just paid a dividend of $4 per share, its growth rate is estimated...

CCV Corporation has just paid a dividend of $4 per share, its growth rate is estimated to be 6% per year, and its stock beta is 4. The current 10-year Treasury bond yield is 2.5% and the market risk premium is estimated to be 8%. What is the expected price of the stock?

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Expert Solution

Required rate = Risk free rate + beta(risk premium)

Required rate = 2.5% + 4(8%)

Required rate = 34.5%

Next year dividend = 4 (1 + 6%) = 4.24

Expected stock price = Next year dividend / required rate - growth rate

Expected stock price = 4.24 / 0.345 - 0.06

Expected stock price = 4.24 / 0.285

Expected stock price = $14.88

jeff jeffy answered 2 years ago

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