Ask Question
5 June, 11:43

Big Cola Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price,

+4
Answers (1)
  1. 5 June, 13:41
    0
    Given that,

    Risk free rate = 4%

    Beta = 1.15

    Market risk premium = 5%

    Paid dividend per share = $0.75

    Required rate of return:

    = Risk free rate + (Beta * Market risk premium).

    = 4% + (1.15 * 5 %)

    = 4% + 5.75 %

    = 9.75 %

    Current stock price:

    = Expected dividend per share : (Required rate of return - Growth in dividends)

    = [0.75 (1 + 0.055) ] : (0.0975 - 0.055)

    = 0.79125 : 0.0425

    = $ 18.62 (approx).
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Big Cola Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers