No Fly Airlines is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of No Fly Airlines has a beta of 3.00. The intrinsic value of the stock is
A) $46.67.
B) $50.00.
C) $56.00.
D) $62.50.

Question

Quizplus · Accepted Answer

The intrinsic value of the stock is $46.67. This is calculated using the Gordon Growth Model, which takes into account the expected dividend, the growth rate of dividends, the risk-free rate of return, and the beta of the stock.

No Fly Airlines Is Expected to Pay a Dividend of $7