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The yield on 10 year A Treasury Bonds is 3% and the market return is 5%. You are studying A stock which has a beta
The yield on 10 year A Treasury Bonds is 3% and the market return is 5%. You are studying A stock which has a beta of 1.2. A has just paid a dividend of 1.20 and expects dividends to grow at a rate of 4% per annum for the next 5 years, and to slow down to 2% growth per annum thereafter.
By Using Excel to calculate, showing necessary workings,
- Calcaulate the discount rate you should apply to A Stock.
- What is the intrinsic value of A Stock?
- If Dividends stop growing after the first 5 years, what is the intrinsic value of A Stock?
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