You are considering an investment in Crisp\'s Cookware\'s common stock. The stoc

Question

You are considering an investment in Crisp's Cookware's common stock. The stock is expected to pay a dividend of $2.5 a share at the end of the year (D1 = $2.50); its beta is 1.20; the risk-free rate is 4.9 %; and the market risk premium is 5%. The dividend is expected to grow at some constant rate g, the stock currently sells for $46 a share. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years (i.e., what is P ? ?3 )? Round your answer to the nearest cent.

Explanation / Answer

Answer:- D1 2.75 D2 2.75(1.10) = 3.025 D3 3.025(1.10) = 3.328 D4 3.328(1.10) = 3.66 2. Expected price of stock after 3 years: (22/2.75)*3.66 = $29.28

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