PeteCorp's stock has a Beta of 1.22. Its dividend is expected to be $1.87 next year, and will grow by 5% per year after that indefinitely. Assume the risk-free rate is 4%, and the Market Risk Premium is 6%. The stock price would currently be estimated to be $

PeteCorp's stock has a Beta of 1.22. Its dividend is expected to be $1.87 next year, and will grow by 5% per year after that indefinitely. Assume the risk-free rate is 4%, and the Market Risk Premium is 6%. The stock price would currently be estimated to be $

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...

See similar textbooks

Related questions

Q: One year from nowAlafaya is expected to have a price of $69.0. The firm pays an annual dividend of…

A: In the given question we require to calculate the Intrinsic value of Alafaya stock from the…

Q: The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at…

A: Last dividend = $ 0.75 Growth rate = 5.50% Beta = 1.15 Risk premium = 5% Risk free rate = 4%…

Q: What would be the expected price of a stock when dividends are expected to grow at a 25% rate for…

Q: One year from today, investors anticipate that Pa-Burger, Inc. stock will pay a dividend of Php 3.25…

A: Dividend growth model Current price of stock= D1/(ke-g) D1= divided at the end of the year Ke=…

Q: A stock is expected to pay a dividend of $1.65 at the end of the year. The required rate of return…

A: Expected dividend (D1) = $ 1.65 Required return (rs) = 9.32% Growth rate (g) = 7.2%

Q: ou are considering issuing a stock that will pay a dividend of $1.00 a year from today. The base…

A: The dividend discount model is a model that helps to compute the current price of the stock with the…

Q: A stock is expected to pay a dividend of $1.26 at the end of the year. The required rate of return…

A: Formula: Current stock = Expected dividend/(Required rate - Growth rate)

Q: A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per…

A: The growth rate can be referred to as the return expected by the investors from an investment…

Q: BBM is expected to pay a dividend of $2.00 in the coming year. Dividends are expected to grow at the…

A: Given; Risk free rate = 4% market risk premium = 5% beta = 1.2 Growth rate = 2% Expected dividend =…

Q: The current dividend, D0, of the stock of Sun Devil Corporation is $3 per share. Under present…

A: As per the given information: Current dividend - $3 per shareGrowth rate - 4 percent annuallyBeta -…

Q: Blast! stock has a beta of 0.8 and is currently selling for $22. Your DCF analysis indicates that…

A: In finance, the term “Alpha” represents a financial ratio that helps to measure the maximum return…

Q: If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following…

A: Growth in Dividend will increase the value of stock in future so price of stock depends on growth in…

Q: Low Fly Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to…

A: As per CAPM, Required return = risk free rate + beta * (market return - risk free rate) = 6% + 3.00…

Q: Based on current dividend yields and expected growth rates, the expected rates of return on stocks A…

A: Given that;For stock A:Expected return is 11%Standard deviation is 10% Beta is 0.8

Q: Tesla is expected to enjoy a very rapid growth rate in dividends of 30% a year for the next 3 years.…

A: Last dividend = D0 = $2 Risk free rate (Rf) = 5% Stock with beta 1.5 has return = 11.75% Beta of…

Q: Analysts expect Exxon Mobil stock to pay a dividend of $3.43 in 1 year and is expected to sell for…

A: Expected dividend of Stock in year 1(D1) = $3.43 Expected Selling Price of Stock in year 1(P1) =…

Q: A stock is expected to pay a dividend of $1.67 at the end of the year. The required rate of return…

A: A stock is expected to pay a dividend of D1 = $1.67 at the end of the year. The required rate of…

Q: d to grow at a constant rate of 6% for ever. What should be the market price per share of this…

A: Given information : Expected dividend = 20 Dividend growth rates = 11%, 14%, 6% Interest rate = 18%…

Q: Sharbaugh Inc.'s most recent dividend was $2.00 per share. The dividend is expected to grow at a…

A: Investors' expectations of a company's potential to gain and increase profits in the future are…

Q: Paccar’s current stock price is $48.20 and it is likely to pay a $0.80 dividend next year. Since…

A: Required return can be calculated as: = (Dividend to be paid next year / current stock price) +…

Q: Consider the valuation of a share of common stock that paid a $2 dividend at the end of last year…

A: Dividend discount model refers to a stock valuation model which is used by the company for…

Q: CDD is expected to pay a dividend of $0.20 annually, a year from today. It is estimated that during…

A: Next dividend (D1) = $0.20 D2 = 1.16 * 0.2 = $0.232 D3 = (1.16)^2 * 0.2 = $0.26912 D4 = (1.16)^3 *…

Q: The risk-free rate of return, rRF, is 11 percent; the required rate of return on the market, rM, 14…

A: This question require us to compute the value of stock. As per Dividend Discount model: Value of…

Q: A stock is expected to pay a dividend of $0.8 at the end of the year (D1=0.8), and it should…

A: As per Dividend Discount model, P0 = D1/(ke- g) Where, P0 = current stock price D1 =0.80 Ke =…

Q: Blast! stock has a beta of 1.4 and is currently selling for $16. Your DCF analysis indicates that…

A: GIVEN, beta = 1.4 current price (p0) = $16 p1=$18.5 dividend (d1) = $1 risk free rate ( rf) = 5%…

Q: You are considering issuing a stock that will pay a dividend of $1.00 a year from today. The base…

A: a stock that will pay the dividend of 1.00 a year from today the dividend will grow 10% for 2 years…

Q: Management has recently announced that expected dividends for the next four years will be as…

A: Formulas: Expected return = Risk free rate + (beta*(market rate - risk free rate))

Q: stock is expected to pay a dividend of $2.75 at the end of the year (i.e., D1 5 $2.75), and it…

A: Dividend discount model is used to determine the intrinsic value of a stock by discounting all the…

Q: MikklesonMining stock is selling for $40 per share and has an expected dividend in the coming year…

A: Frist we need to calculate currant price of bond by using this equation Bond price =C*1-1(1+r)nr…

Q: New England Electric has projected dividends of $2.72 in one year and $3.10 in two years. If the…

A: Given the following information: Projected dividends in one year: $2.72 Projected dividends in two…

Q: A firm is expected to pay a dividend of $2.85 next year and $3.15 the following year. Financial…

A: Terminal value of stock is the present value of stock at a future point of time after considering…

Q: You are considering an investment in General Electric’s common stock. The stock is expected to pay a…

A: Given, Risk free rate 5.6% Market risk premium 6% Beta 0.9 Current Price (P0) = $25 Expected…

Q: You are considering buying common stock in Grow On, Inc. You have projected that the next dividend…

A: Cost of equity = Risk-free rate + Beta(Market return - Risk-free rate) Cost of equity = 0.056 +…

Q: Gamzan Corporation is expected to pay dividend of Rs. 20 this year. This dividend is expected to…

A: In this we have to calculate present value of dividend and intrinsic value of stock.

Q: Mikkleson Mining stock is selling for $40 per share and has an expected dividend in the coming year…

A: Current Dividend = $2 Growth Rate = 5% Discount Rate = 10%

Q: Reco Corp. is expected to pay a dividend of $2.25 next year. The forecast for the stock price a year…

A: Next year dividend (D1) = $ 2.25 Next year price (P1) = $ 37.50 Required rate of return (R) = 14%…

Q: ABC Incorporated’s stock is selling for $40 per share and has an expected dividend in the coming…

A: The computation of the price of the bond at the end of the 3rd year is as follows: The formulae…

Q: A stock is expected to pay a dividend of $1.6 at the end of the year. The required rate of return is…

A: The dividend discount model is the model of stock valuation that assumes that the stock price of a…

Q: Dyer Furniture is expected to pay a dividend of D1 = $1.65 per share at the end of the year, and…

A: The Gordon Growth Model or dividend discount model is a method of valuing a company's stock price…

Q: The current price of XYZ stock is $27 per share. If the required rate of return is 0.13 percent, and…

A: Current price = $27 Required return = 0.13 Growth rate = 0.055

Q: Stock in Daenerys Industries has a beta of 1.02. The market risk premium is 8 percent, and T-bills…

A: The formula for the calculation of cost of equity under CAPM is as follows: Cost of equity=Risk free…

Q: Birkin Systems is expected to pay a dividend of D1 = $2.00 per share at the end of the year, and…

A: Expected Return = Risk free rate + beta * market risk premium Expected Return= 4% + 1.20 * 6%…

Q: Thomas Brothers' stock is selling for $6.25 per share and it is expected to pay a $.50 per share…

A: This question is based on Dividend discount model. Information given is related to Dividend discount…

Q: Orkazana Corp is expecting rapid growth. Dividends are expected to grow at 25% per year during the…

A: In this we have to use constant growth model of dividend.

Question

Help pls

PeteCorp's stock has a Beta of 1.22. Its
dividend is expected to be $1.87 next year, and
will grow by 5% per year after that indefinitely.
Assume the risk-free rate is 4%, and the Market
Risk Premium is 6%.
The stock price would currently be estimated
to be $

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction :

VIEW

Step 2: Calculation of required rate of return:

VIEW

Step 3: Calculation of current stock price:

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
Blast! stock has a beta of 0.8 and is currently selling for $22. Your DCF analysis indicates that Blast! will trade at $21.5 a year from today and you expect that the company will pay a dividend of $2 for the year. If the risk-free rate is 0.04, and the market risk premium is 0.1, what is the alpha of this stock?
Xila-Fone Corp. expects to earn $4.00 per share next year, with an expected payout of 30%. Investors expect the dividend to grow at a constant rate of 8% for the foreseeable future. The risk-free rate is 5%, and the beta that is 10% more volatile than the market as a whole, and the expected return on the market is 14%. What is the estimated price of the stock?
Runyon Industries is expected to enjoy a very rapid growth rate in dividends of30 percent a year for the next three years. This growth rate is then expected to slow to20 percent a year for the next five years. After that time, the growth rate is expected tobe 6 percent a year. D0 is $2. The beta for this stock is 1.5. The expected return on the market is 11 percent, and the risk‐free rate is 5 percent. What is the estimated price of the stock?
Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year. Dividends are expected to grow at the rate of 9% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 20%. The stock of Todd Mountain Development Corporation has a beta of 0.60. Using the constant-growth DDM,calculate the intrinsic value of the stock.
May I have the step by step calculations for the following: Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?