Answer:
The stock value will be 15.29 times the value of the stock today
if the stock is 10 it will be 152.9
If the stock price is 15 it will be
15 x 15.29 = 229.35
And so on
Explanation:
We are not given a dividend amount ,but we can solve for the times it will multiply the stock price.
First, using CAPM we can determinate the cost of equity
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free 0.060
market rate 0. 125
premium market = (market rate - risk free) = 0.065
beta(non diversifiable risk) 1.5
[tex]Ke= 0.06 + 1.5 (0.065)[/tex]
Ke 0.15750
Now with this formula we calculate the value of the stock on year 3
using the gordon model
[tex]\frac{divends{1}}{return-growth} = Intrinsic \: Value[/tex]
We need to solve for dividends at the end of the year 3
[tex]Dividends \times (1+g)^{3}[/tex]
1.728
this is the dividends at end of year 3 (t = 0) for the gordon model we need the dividend of next year (t = 1) so we multiply by the grow rate of the fourth year
Dividends at t=1 = 1.728 x 1.04 = 1.79712
Now we use the gordon model to determinate the stock value
[tex]\frac{divends{1}}{return-growth} = Intrinsic \: Value[/tex]
grow after year 3 will be 4%
return 15.75%
Dividends 1.79712
[tex]\frac{1.79712}{0.1575-0.04} = Intrinsic \: Value[/tex]
Stock value = 15,294638297872 = 15.29
The stock value will be 15.29 times the value today
