Query of fm

Urvashi Saini (Difference between Peak Performers & eve)   (1494 Points)

23 August 2013  

Hello frnds Plz solve this query which is based on constant growth valuation model.

ABC ltd's common stock is expected to pay a dividend of Rs 3 a share at the end of this year.

its beta is 0.8

the risk free rate is 5.2%

the market risk premium is 6%

dividend is expected to grow at some constant rate g,

and the stock currently sales for Rs 40 a share. assuming the market is in equilibrium what does the market believe will be the stock's price at the end of 3 year?