Question
Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at the end of year
Stock one is in a relative declining industry: Suppose that the company of stock one will pay one terminal dividend at the end of year two, then go out of business, with a liquidation price of $10 per share. The dividend is as yet unknown but based on a thorough analysis of all public information, investors agree on the following distribution: Possible Dividend Probability $10 0.4 $5 0.4 $2 0.2 Suppose investors rationally use the CAPM to discount In addition, based on all public information, it is believed that Beta of the stock is 1.5, the expected market index return is 15%, and riskless rate is 5.0%. Using this information, calculate: what is the current share price of the company?
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