7. If the required rate of return as calculated in (6) were used in the dividend discount model, what would be an appropriate value for XYZ's stock today (T=0)?

PV stock = 1.744 / (0.11 - 0.09) = 87.20

From question 7, Why did the course hero person use 0.09 instead of 0.9 for this calculation? Was that a mistake? Thanks. I don't understand how .09 translates to the growth rate (k) from the dividend discount model.

Extremely basic question. Thanks.

Financial Markets & Institutions Equity Pricing Homework Exercise Homework Exercise 4 The stock of company XYZ is currently price at $80 per share. Its earnings this year (T=0) are $4.00 per share. It has paid out a dividend equal to 40% of its earnings for the past several years. It's Return on Equity (ROE) has been 15%. 1. What is the company's current Dividend Yield? 1) 1.60 / 80 = 0.02 Dividend Discount Model The market expects that companies similar to XYZ will display a rate of return of 13% per year 2. What is the company's expected Growth Rate for Earnings & Dividends? 1) 80 = 1.60 / (0.13 - x) 80 = 1.60 / (0.13 - 0.11), g = 0.11 3. What dividends will the company pay this year (D0) and be expected to pay next year (D1)? 1) This year = 1.60 2) Next year = 1.776 4. What is the estimated value of the stock today (T=0) using the Dividend Discount Model? 1) PV stock = 1.776 / (.13 - 0.11) = 88.8 5. What is the estimated value of the stock 1 year from today (T=1)? 1) 1.971 / (.13 - .11) = 98.57 Capital Asset Pricing Model (CAPM) The current risk free interest rate is 2% The market as a whole is expected to realize a return of 12% this year XYZ's stock has historically displayed a Beta of 0.9 6. Using the CAPM, what is the required rate of return that investors would demand of XYZ this year? 1) 2% + 0.9 ( 12 % - 2 % ) = 11% 7. If the required rate of return as calculated in (6) were used in the dividend discount model, what would be an appropriate value for XYZ's stock today (T=0)? 1) PV stock = 1.744 / (0.11 - 0.09) = 87.20 Market Multiples 8. If the forward Price / Earnings ratio for XYZ during similar stages of the business cycle had ranged from 11x to 18x, what would be the range of values for its stock