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Find what is the expected current share price

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Recently, an analysis of Caterpillar Inc. found that its equity beta (the beta on its stock) is 1.03 (this puts its volatility right in line with the broader market). The most recent annual dividend is $4.12/share. A survey of economist finds that the perceived market risk premium is around 6.5%. As of Oct 1, 2020, the yield on a 30-year U.S. Treasury was 1.45%. Given this information, answer the following questions.

Problem a. Assume dividends are expected to grow by 4% in perpetuity. Given this assumption, what is the expected current share price?

Reference no: EM132672541

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