Company A has introduced a new product. As a result, you expect earnings and dividends to grow at 12% for the next 3 years. After which the growth rate will fall to 5% indefinitely. The beta on Company A’s stock is 2, the risk free rate of interest is 6% and the market risk premium is 6%.(i) Calculate the fair value of the stock if the last dividend (Do) was 60 pence.(ii) Calculate the fair value for the stock at the end of year 3 and at the end of year 4.

Answer rating: 100% (QA)

i Required rate of return Risk free rate of return betaMarket risk premium 6 26 6 12 18 Statement sh... View the full answer