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Compute the expected stock price of the company

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Question - Ratu and Matai Ltd has 100,000 shares on issue. The company is expected to pay dividends of $1.50, $2.50 and $3.00 in the next three years respectively. After three years the dividend is expected to grow at a constant rate equal to 5 percent per year indefinitely. The current rate on government bonds is 4%, whereas the expected return on the market is 11%. The company's level of systematic risk is 1.25

Required -

1. Compute the expected stock price of the company's common stock today. Assume that the investors' rate of return is equal to the expected of Ratu and Matai Ltd.

2. If the company has a price-earning ratio of 9, what are the forecasting earnings?

Reference no: EM132535522

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