The Isberg Company justpaid a dividend of $0.80 per share, and that di

QUESTION

The Isberg Company justpaid a dividend of $0.80 per share, and that dividend isexpected to grow at a constant rate of 6.00% per year in thefuture. The companys beta is 1.25, the market risk premium is5.00%, and the risk-free rate is 4.00%. What is the companyscurrent stock price?$19.95$20.45$20.96
Isberg Company just paid a dividend (D 0 ) =$0.80 Dividend constant growth rate(g) = 6% Companys() = 1.25 Market risk premium (R m ) = 5% Risk free rate (R f ) = 4% Required return(R e ) = R f (R m ) = 0.04 1.25(0.05) Required return = 0.1025(or) 10.25% Companys Current Stock Price(P 0 ) = D 1 / (R g) D

1 = D 0 * (1 g) D 1 = $0.80 * (1 0.06) D 1 = $0.848 Companys Current Stock Price (P 0 ) =$0.848 / (10.25% 6%) = $0.848 / 4.25% = $0.848 / 0.0425 = $19.95 IsbergCompanys Current Stock Price(P 0 ) = $19.95

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