Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00% What is Jameson's current stock price, P0?

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The correct answer is A.The cost of equity can be calculated using the CAPM model:$$r_e = r_f + \beta * (r_m - r_f)$$where:* $$r_e$$ is the cost of equity* $$r_f$$ is the risk-free rate* $$\beta$$ is the beta of the stock* $$r_m$$ is the expected market returnIn this case, we have:* $$r_f$$ = 4.00%* $$\beta$$ = 1.15* $$r_m$$ = 5.00% + 4.00% = 9.00%Therefore, the cost of equity is:$$r_e = 4.00% + 1.15 * (9.00% - 4.00%) = 9.65%$$The current stock price can be calculated using the dividend discount model:$$P_0 = \frac{D_1}{r_e - g}$$where:* $$P_0$$ is the current stock price* $$D_1$$ is the next dividend payment* $$r_e$$ is the cost of equity* $$g$$ is the expected growth rate of dividendsIn this case, we have:* $$D_1$$ = $0.75 * (1 + 5.50%) = $0.79* $$r_e$$ = 9.65%* $$g$$ = 5.50%Therefore, the current stock price is:$$P_0 = \frac{$0.79}{9.65% - 5.50%} = $18.62$$

Jameson Company Just Paid a Dividend of $0