Question
The company's beta is 0.95, its dividend growth rate is 7.7%, and just yesterday it paid a dividend of $1.55 . The economy wide risk
The company's beta is 0.95, its dividend growth rate is 7.7%, and just yesterday it paid a dividend of $1.55 . The economy wide risk free interest rate is 4.5%, and the expected risk premium for the market portfolio is 9.0%. Find the stock's intrinsic value using the dividend constant growth model and the required rate of return implied by Capital Asset Pricing Model. Which statement is most accurate?
a. | Intrinsic value is $31.20 and if the stock price is $40.56 you should buy it | |
b. | Intrinsic value is $27.13 and if the stock price is $40.56 you should buy it | |
c. | Intrinsic value is $31.20 and if the stock price is $28.08 you should buy it | |
d. | Intrinsic value is $35.88 and if the stock price is $40.56 you should not buy it | |
e. | Intrinsic value is $27.13 and if the stock price is $28.08 you should buy it |
I know how to get the first part of the answer but how do you get the second part?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started