A company currently pays a dividend of $2.00 per share (i.e., D₀=$2.0). It is estimated that company's dividend will grow at a rate of 20% per year for the next three years, and the the dividend will grow at a constant rate of 4% thereafter. The company's stock has a beta of 1.5, the risk-free rate is 6%, and the market return is 12.50%. What is your estimate of the company's stock price at the end of year 3 (i.e., P₃)?

 

Answer rating: 100% (QA)

Heres how we can calculate it Step 1 Calculate the dividend at the end of year 3 D3 D3 D0 1 ... View the full answer