Exercise 2

Calculate the stock's intrinsic value in each case :

a/ A company pays 5 SR per share dividend every year and there is no growth for the next years .The stock beta is 1.1, the risk-free rate is10 % and the market return is14 %.

b/ A company distribute this year 3 SR as a dividend per share. The policy of this company is to maintain a constant growth rate in its dividends (3%). The stock beta is 1.1, the risk-free rate is10 % and the market return is14 %.