Question
Charlie and Sarah co-manage a large global equity portfolio. They are researching Target Corp.(TGT), as of January 5, 2017. The current stock price is $170.
Charlie and Sarah co-manage a large global equity portfolio. They are researching Target Corp.(TGT), as of January 5, 2017. The current stock price is $170. The most recent quarterly dividend was $0.63 per share. Over the coming year, one more quarterly dividend of $0.63 is expected, followed by three quarterly dividends of $0.73. Using the CAPM, Charlie and Sarah estimate that (TGT) required rate of return is 7 percent. They have set a one-year target price for TGT of $205. Ignoring returns from reinvesting quarterly dividends:
A. What is their one-year expected return?
B. What is the target price that is MOST consistent with TGT being fairly valued as of January 5, 2017?
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