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What does the market believe the stock price

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Question - We are considering a purchase of the common stock of Cowboy Corp. The stock is expected to pay a dividend of P2 per share at the end of the year (i.e., D1 = P2.00). The stock has a beta equal to 1.2. The risk-free rate is 6 percent. The market risk premium is 5 percent. The stock's dividend is expected to grow at some constant rage, g. The stock currently sells for P40 a share. Assuming the market is in equilibrium, what does the market believe the stock price will be at the end of three years? (In other words, what is P3?)

a. P46.31

b. P45.67

c. P42.35

d. P40.00

e. P49.00

Reference no: EM132956136

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