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market risk premium is 6%. The stock has a beta of 1.20 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model.

market risk premium is 6%. The stock has a beta of 1.20 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model.

Essentials Of Investments
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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You see a fast growing company that is estimated to have dividend growth of 18%, 16%, and 14% over each of the next three years (18% in year 1, 16% in year 2, 14% in year 3). The company paid a dividend of $2.25 per share over the past 12 months. Dividends are expected to grow at a constant rate of 3.0% per year beginning in year 4 to perpetuity. The risk-free rate of return is 4% and the market risk premium is 6%. The stock has a beta of 1.20 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model. $30.55 $35.11 $39.50 $34.36
Transcribed Image Text:You see a fast growing company that is estimated to have dividend growth of 18%, 16%, and 14% over each of the next three years (18% in year 1, 16% in year 2, 14% in year 3). The company paid a dividend of $2.25 per share over the past 12 months. Dividends are expected to grow at a constant rate of 3.0% per year beginning in year 4 to perpetuity. The risk-free rate of return is 4% and the market risk premium is 6%. The stock has a beta of 1.20 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model. $30.55 $35.11 $39.50 $34.36
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