The stock price will reach the equilibrium level

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Reference no: EM131975288

The risk-free rate is 4%; the market risk premium is 8%. LDC Company’s stock has a beta of 1.5. The last dividend was $4, and the dividend growth rate (g) is expected to be a constant of 10%. The stock’s current market price (P0) is $70. If you buy the stock now, what is the expected rate of return for the first year? Assume that the stock price will reach the equilibrium level at t=1 if it is currently mispriced.

Reference no: EM131975288

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