7. The firm expects earnings and dividends to grow at a rate of 25% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, Do, was P 1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a. P 26.77 d. P 30.21 8. The firm's last dividend was P 1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (r.) is 12%. What is the best estimate of the current stock price? b. P 29.05 e. P31.42 c. P 27.89 f. P42.35

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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7. The firm expects earnings and dividends to grow at a rate of 25% for the next 4 years, after the growth rate in
earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, Do, was P 1.25, its beta is
1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the
common stock?
a. P 26.77
c. P 27.89
f. P42.35
b. P 29.05
d. P 30.21
8. The firm's last dividend was P 1.75. Its dividend growth rate is expected to be constant at 25% for 2 years,
after which dividends are expected to grow at a rate of 6% forever. Its required return (r.) is 12%. What is
the best estimate of the current stock price?
e. P31.42
Transcribed Image Text:7. The firm expects earnings and dividends to grow at a rate of 25% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, Do, was P 1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a. P 26.77 c. P 27.89 f. P42.35 b. P 29.05 d. P 30.21 8. The firm's last dividend was P 1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (r.) is 12%. What is the best estimate of the current stock price? e. P31.42
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