2) The following information is given. The expected rate of return of the index in next year...
Question:
2) The following information is given. The expected rate of return of the index in next year is 30%, current annual rate of return of T-Bills is %15. We consider a stock whose beta is 1.2. It is estimated that this firm will pay a dividend per share of 2 TL next year. Investors predict that dividends will grow at the constant rate of 15% in future years. Then what may be the fundamental price of that stock?
3) In the problem above (question 2); let us assume that investors rather than predicting one growh rate of 15% ; predict two different growh rates. It is estimated that the dividends will grow at the rate of 10% in the next three years. Then the growth rate of dividends will accelerate to 20% starting in the fourth year and that growth rate will continue forever in the rest of future years. Given this; how the fundamental price of that stock changes ? (use the values of Question 2 in the answer. Only the growth rate is different in this question)
Essentials of Business Analytics
ISBN: 978-1285187273
1st edition
Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann, David Anderson, Dennis Sweeney, Thomas Williams