Question
Assume that the risk-free rate of return (Krf) is 3% and the required rate of return on the market (Km) is 8%. A given stock,
Assume that the risk-free rate of return (Krf) is 3% and the required rate of return on the market (Km) is 8%. A given stock, say, Caterpillar (CAT) has a beta coefficient of 1.03. If the dividend per share during the coming year, meaning D1, is $4.12 and g = 3.50%, what is the current intrinsic value of the stock?
a. Exactly how much was D0?
b. How long will it take for the dividend to double, given the growth rate, approximately?
c. Which of the most fundamental assumptions about the Gordon Model/ Constant Growth Dividend Model broke down in the crash of 2008; give an example of a firm that was affected?
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