Question
Companies A, B and C pay annual dividends, the growth rate of which is estimated by analysts following the drawdown and is shown in the
Companies A, B and C pay annual dividends, the growth rate of which is estimated by analysts following the drawdown and is shown in the following table. We also have the following information:
| A | B | C |
Beta coefficient compared to a highly diversified portfolio : | 0.9 | 1.25 | 2.00 |
Next dividend (at t=1) : | 0.75 $ | 0.10 $ | 1.65$ |
Dividend growth rate (% per year, indefinite horizon) : | 2.00 % | 5.00% | 3.10% |
Current stock price (t=0) : | 27.00 $ | 8.00 $ | ? |
Assuming there is no relative misvaluation, what should Company C's stock price be? What is the current risk-free rate of return and risk premium in the market?
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