Low Fly Airline 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 Low Fly Airline 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

6% + 3(14% 6%) = 30%; P = 7/(.30 .15) = $46.67.

Low Fly Airline Is Expected to Pay a Dividend of $7