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FinanceQ&A LibraryA company currently pays a dividend of $2 per share, D0 = $2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?Question

A company currently pays a dividend of $2 per share, D0 = $2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?

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