Question: Company X just paid a $2.40 per share dividend on its common stock yesterday (i.e., D0 = $2.40). The dividend is expected to grow 25 percent a year for the next three years, after which time the dividend is expected to grow at a constant rate of 5 percent a year for ever. The stock's beta is 1.2, the risk-free rate of interest is 6 percent, and the rate of return on the market is 11 percent. What is the company's current stock price?
1) What is the require rate of return on the stock?
2) What is the price of the stock at the end of year 3?
3) What should be the stock price today ?