Dyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock price?
A) $28.90
B) $29.62
C) $30.36
D) $31.12
E) $31.90

Question

Quizplus · Accepted Answer

$$\begin{array} { l r } 
\mathrm { D } _ { 1 } & \$ 1.25 \
 b& 1.15 \
\mathrm { r } _ { R F} & 5.50 \% \
\mathrm { RP } _ { \mathrm { M } } & 4.00 \% \
\mathrm {~g}& 6.00 \% \
 \mathrm { r } _ { s } = \mathrm { r } _ { \mathrm {R F } } + b \left( R P _ { \mathrm { M } } \right) =  & 10.33 \% \
\mathrm { P } _ { \mathrm { 0 } } = \mathrm { D } _ { 1 } / \left( \mathrm { r } _ { s } - \mathrm { g } \right)& \$ 28.90
\end{array}$$

Dyer Furniture Is Expected to Pay a Dividend of D1