11) Suppose that a company has just paid a dividend of $1.50 per share. Dividends are expected to grow at 4% per year forever. The market risk premium is 3% and the risk-free rate is 4%. The variance of the market portfolio is 0.15 and the covariance of the stock with the market portfolio is 0.30. What is the fair price of the stock? A. $22.28 B. $26 C. $34 D. $78

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 5P: A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s...
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11) Suppose that a company has just paid a dividend of $1.50 per share. Dividends are expected to grow at 4% per year forever. The market risk premium is 3% and the risk-free rate is 4%. The variance of the market portfolio is 0.15 and the covariance of the stock with the market portfolio is 0.30. What is the fair price of the stock? A. $22.28 B. $26 C. $34 D. $78

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