Assume that the risk-free rate is 8 percent, the expected return on the market is 13 percent, and that a share of stock in your company has a beta of 1.4. if the current dividend just paid (d0) was $2.25 and is expected to grow at a long-run growth rate of 10 percent per year, then how much should investors be willing to pay for this stock? group of answer choices

The investors should be willing to pay $49.50 for this stock

Explanation:

Hi, first, we need to find out what the cost of equity is in order to find the price of the stock. that is:

Where:

rf= Risk free rate

rm=return on the market

r(e)=cost of equity

After finding r(e), we would need to find the price using the following equation.

Where:

Do= last dividend

g= growth rate

r(e)= cost of equity.

ok, so, let´s find out what the cost of equity is.

So, the r(e)=15%, now let´s find the price of this stock

Therefore, the price of this stock is $49.50

Best of luck.

answer; im thinking the correct answer is (7years);