jamac25841 jamac25841

15-12-2022
Business

Answered

gm is expected to pay a dividend of $2.00 in the coming year. dividends are expected to grow at the rate of 2% per year. the risk-free rate is 4% and the market risk premium is 5%. gm has a beta of 1.2. the value of the stock should be:

Answer :

contexto1019 contexto1019

19-12-2022

The value of the stock would be $25.

Required Return.

The price-to-earnings (P/E) ratio of the corporation is the most used method of stock valuation. The P/E ratio is calculated by dividing the stock price by the most recent reported earnings per share for the company (EPS). A low P/E ratio suggests that a company is offering an appealing amount of value to the person purchasing it.

Risk free rate + market risk premium x Beta

4 + 5x 1.2

10%

Expected dividend = 2

growth = 2%

Value of the stock = D1 / Re g

2 / 10% - 2%

$25

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