question archive SC is expected to pay a dividend of $2
SC is expected to pay a dividend of $2
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SC is expected to pay a dividend of $2.00 in the coming year. Dividends are expected to grow at the rate of 2% per year. The risk-free rate is 4% and the market risk premium is 5%. GM has a beta of 1.2. The value of the stock is:
a. $20.00
b. $25.00
c. $30.00
d. $40.00
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b. $25.00
Step-by-step explanation
Return = Risk free rate + Beta * Market risk premium
= 4% + 1.2 * 5%
= 4% + 6%
= 10%
Value of the stock = Expected dividend / (Return - Growth rate)
= $2 / (10% - 2%)
= $25
