A company is expecting to pay a dividend next year of 1.35 per share. The...
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A company is expecting to pay a dividend next year of 1.35 per share. The firm knows that the following year they will pay a dividend of 2.10, but after that they think that dividends will grow a rate of 5% for one year and 3% thereafter. You have just completed your stock's chapter and know that the appropriate rate of risk you should use to discount your investment (Rs) is determined by the CAPM model (Rs = rf + B*(Rm-Rf)). Given that you know the risk-free rate is 1.25% today, this particular stock's beta is 1.25, and that you expect the stock market to return 8% on average over the next several years---what is an appropriate price for this stock today?
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