The risk-free rate of return is 4%, the required rate of return on the market is

Question

The risk-free rate of return is 4%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.40 and g = 4%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The risk-free rate of return is 4%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.40 and g = 4%, at what price should a share sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Here r = 12%, B = 1.5, D1 = $2.40, g = 4%

Using Gorden Model

P0 = D1 / r - g = $2.40 / 0.12 - 0.04 = $30

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