Consider a company with a beta of 1.6. The risk-free interest rate in the market is 4%, whereas the market risk premium is 6%. The recent dividend was just declared for the company and was $3.00 per share. The required rate of return for the stock is 12%, and the growth rate of dividends is constant at 5%. A.) Using a dividend discount valuation approach, what is the intrinsic value of the stock? B.) If you held the stock for one year, and dividends did continue to grow at 5%, but you also sold the stock after one year for $48.50, instead of its estimated value, what would be your expected rate of return?

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A Intrinsic Value using Dividend Discount Model DDM Formula Intrinsic Value D1 r g where ... View the full answer