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Calculate the current stock price

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Question 1. Dividend Growth Model with CAPM

Part (a)

Assume that the long-term growth rate (g) is 2% and the dividend next year (D1) is $90 per share. Also, assume that Riskfree rate (Rf) = 4%, Expected market return (Rm) = 10%, and Beta of the stock = 0.85. Calculate the current stock price (P0) using Dividend Growth/Discount Model (DGM or DDM). Show your steps and calculations as clear as possible.

Part (b)

Assume that the long-term growth rate (g) is 3% and the dividend next year (D1) is $60 per share. Also, assume that Riskfree rate (Rf) = 4%, Expected market return (Rm) = 10%, and Beta of the stock = 1.85. Calculate the current stock price (P0) using Dividend Growth/Discount Model (DGM or DDM). Show your steps and calculations as clear as possible.

Reference no: EM13504105

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