Tesla is expected to pay a dividend of $3 per share at the end of this...

Tesla is expected to pay a dividend of $3 per share at the end of this year; its beta is 0.9; the risk-free rate is 5.2%, and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 per share. What does the market believe will be the stock's price three years from now?

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Expert Solution

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

=5.2+(6*0.9)=10.6%

Required return=(D1/Current price)+Growth rate

0.106=(3/40)+Growth rate

Growth rate=0.106-(3/40)

=0.031

P3=Current price*(1+Growth rate)^3

=40*(1+0.031)^3

=$43.84(Approx)

jeff jeffy answered 2 years ago

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