The Yempy Corp. is recently paid a dividend of$2. The dividends are expected to grow at 20%for next 4 years due to technological advancedand thereafter, the growth rate settles down to2% for ever.The risk-free rate is 2.2% and the market riskpremium is 6%. If the beta of the stock is 1.3,what must be the current selling price of thecompany's stock?Calculate the current selling price of the stock.The current selling price of the stock is $36.72The current selling price of the stock is $35.07The current selling price of the stock is $25.08O The current selling price of the stock is $31.05

Risk free rate = 2.2%Beta = 1.3Marker risk premium = 6%Cost of equity= Risk free rate + (Beta*Market…

Answered: The current selling price of the stock…

The current selling price of the stock is $36.72 The current selling price of the stock is $35.07 The current selling price of the stock is $25.08 The current selling price of the stock is $31.05

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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Question

The Yempy Corp. is recently paid a dividend of
$2. The dividends are expected to grow at 20%
for next 4 years due to technological advanced
and thereafter, the growth rate settles down to
2% for ever.
The risk-free rate is 2.2% and the market risk
premium is 6%. If the beta of the stock is 1.3,
what must be the current selling price of the
company's stock?
Calculate the current selling price of the stock.
The current selling price of the stock is $36.72
The current selling price of the stock is $35.07
The current selling price of the stock is $25.08
O The current selling price of the stock is $31.05

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Step 1: Finding cost of equity

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Step 2: Finding dividends and horizon value

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Step 3: Finding current selling price

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