If the risk-free rate is 5%, the expected market risk premium (rm- rf ) is 10%, the firm has no debt, the equity beta of the firm is 2, the first dividend paid at t=1 is 11, and annual dividends (paid every year forever, starting at t=1) are expected to grow at a rate of 10% per year, what share price should the firm's stock be trading at? 

 

HINT: You can compute the share price as the discounted value of future dividends.

Answer rating: 100% (QA)

To calculate the share price of the firms stock we can use the Gordon Growth Model which calc... View the full answer