Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

Question

Quizplus · Accepted Answer

The correct answer is A because the current stock price is $14.52. The formula for the current stock price is: P0 = D0 / (r - g), where D0 is the current dividend, r is the required return, and g is the growth rate. Plugging in the given values, we get: P0 = $0.75 / (0.1050 - 0.0650) = $14.52.

Schnusenberg Corporation Just Paid a Dividend of D0 = $0