The XYZ company is expected to pay a dividend of $1.00 per share at the end of t
ID: 2795087 • Letter: T
Question
The XYZ company is expected to pay a dividend of $1.00 per share at the end of the year, and that dividend is expected to grow at a constant rate of 2.00% per year in the future. The company’s beta is 1.2, the market risk premium is 5.0%, and the nominal risk-free rate is 2.00%.
A- What is the stocks fundamental price?
B - What is the expected return?
The XYZ company is expected to pay a dividend of $1.00 per share at the end of the year, and that dividend is expected to grow at a constant rate of 2.00% per year in the future. The company’s beta is 1.2, the market risk premium is 5.0%, and the nominal risk-free rate is 2.00%.
A- What is the stocks fundamental price?
B - What is the expected return?
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Amount Ke = Rf + Beta *(MRP) ke = 2% + 1.2*5% ke = 2% + 6% ke = 8% b) expected return = 8% a) Price = D1/(ke-g) Price = 1*1.02/(8% - 2%) Price = 1.02/(6%) Price =$17
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