The 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? A) $18.62 B) $19.08 C) $19.56 D) $20.05 E) $20.55

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\mathrm{D}_{0} & \$ 0.75 \
\mathrm{~b} & 1.15 \
\mathrm{R} \mathrm{R}_{\mathrm{R}} & 4.0 \% \
\mathrm{R}_{\mathrm{M}} & 5.0 \% \
\mathrm{D} & 5.5 \% \
\mathrm{D}_{1}=\mathrm{D}_{0}(1+\mathrm{g})= & \$ 0.7913 \
\mathrm{I}_{\mathrm{S}}=\mathrm{R}_{\mathrm{R}}+\mathrm{b}\left(\mathrm{RP}_{\mathrm{M}}\right)= & 9.75 \% \
\mathrm{P}_{0}=\mathrm{D}_{1} /\left(\mathrm{r}_{\mathrm{S}}-\mathrm{g}\right) & \$ 18.62
\end{array}$

The Jameson Company Just Paid a Dividend of $0