Ashare of stock sells for $36 today. the beta of the stock is 1.1 and the expected return on the market is 15 percent. the stock is expected to pay a dividend of $0.90 in one year. if the risk-free rate is 3.5 percent, what should the share price be in one year?

Explanation:

First, use CAPM formula to find the rate of return on this stock;

CAPM; r = risk free + beta(market return - risk free)

r = 0.035 + 1.1(0.15-0.035)

r =0.035 +0.115

r = 0.15 or 15%

Next, use dividend discount model to find growth rate of the dividends;

Price(yr0) = Div1/(r-g)

36 = 0.90/(0.15-g)

then cross-multiply to get;

5.4 - 36g = 0.90

5.4 -0.90 = 36g

4.5 = 36g

g = 4.5/36

g = 0.125 or 12.5%

Price next year (P1) = Current price (1+g)

P1 = 36*(1+0.125)

P1 = 40.5

Therefore in one year, this stock will be valued at $40.50

muslims control the north africa during the period of 1500 up

to 1800. they made a barrier to prevent further european exploration from

entering the africa from the north. however, the dutch ware still able to move

toward the interior with having south africa as one of the routes leading to

the east for trading with asia.