Kitzcorp carries a debt default rating of AA (rdp=2.2%) and has issued five-year bonds (rmp=1.9%). The current risk free rate (rf) is 1.75%. For the company's stock, the Market has determined that r=10.5%. It is expected that this mature company will pay a dividend on its common stock of $2.50 per share in one year, and that the dividend should grow at 2% per year there after. What should be the market price per share of Kitzcorp stock (rounded to two decimal places)?
Kitzcorp carries a debt default rating of AA (rdp=2.2%) and has issued five-year bonds (rmp=1.9%). The current risk free rate (rf) is 1.75%. For the company's stock, the Market has determined that r=10.5%. It is expected that this mature company will pay a dividend on its common stock of $2.50 per share in one year, and that the dividend should grow at 2% per year there after. What should be the market price per share of Kitzcorp stock (rounded to two decimal places)?
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
Section: Chapter Questions
Problem 1PS
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Kitzcorp carries a debt default rating of AA (rdp=2.2%) and has issued five-year bonds (rmp=1.9%). The current risk free rate (rf) is 1.75%. For the company's stock, the Market has determined that r=10.5%. It is expected that this mature company will pay a dividend on its common stock of $2.50 per share in one year, and that the dividend should grow at 2% per year there after. What should be the market price per share of Kitzcorp stock (rounded to two decimal places)?
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