Question

What is the price of a share of common stock that has an expected dividend of $3.00, a tax rate of 30%, a required return of 15%, an expected growth rate of 5%, and a beta of 2.0?A. $6.00B. $3.00C. $30.00D. $15.00

Answer 1

Answer:

Current price of the share common stock will be $30

So option (c) will be correct answer

Explanation:

We have given expected dividend $D_1= 3$

Required rate of return = 15 % = 0.15

Tax rate = 30 %

Growth rate = 5 %

Beta = 2

We have to find the price of the share

Price of the share is given by $p_0=\frac{D_1}{R_E-g}=\frac{3}{0.15-0.05}= 30$

So current price of the share stock will be equal to $30

So option (C) will be correct answer