A Stock Is Expected to Pay No Dividends for the First

A stock is expected to pay no dividends for the first three years, i.e., D1 = $0, D2 = $0, and D3 = $0. The dividend for Year 4 is expected to be $5.00 , and it is anticipated that the dividend will grow at a constant rate of 8 percent a year thereafter. The risk-free rate is 4 percent, the market risk premium is 6 percent, and the stock's beta is 1.5. Assuming the stock is fairly priced, what is the current price of the stock?

A) $ 69.31
B) $ 72.96
C) $ 79.38
D) $ 86.38
E) $100.00

Correct Answer:

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