Question

Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2. Torque's stock price is

Answer 1

Answer:

The answer is "$\ 11.62 \ (approx)$"

Explanation:

Using formula:

$\text{Required return=risk free rate}+\text{beta}\times \text{(market rate-risk free rate)}$

$=5+(13-5) \times 1.2\\\\=14.6\%\\\\\text{Intrinsic value}=\frac{D_1}{\text{(Required return-Growth rate)}}\\\\= \frac{1}{(0.146-0.06)}\\\\= \frac{1}{(0.140)}\\\\=\ 11.62\ (Approx)$