### Academic approach to stock price

Assignment Help Accounting Basics
##### Reference no: EM13115772

You are considering an investment in the common stock of Kirk Corporation. The stock is expected to pay a dividend of \$3.50 a share at the end of the year (D1 = \$3.50). The stock has a beta equal to 0.75. The risk-free rate is 5.0%, and the market risk premium is 5.5%. The stock's dividend is expected to grow at some constant rate g. The stock currently sells for \$50 a share. Assume that the market is in equilibrium.

What does the market believe will be the stock price at the end of 2 years? (That is, what is P2?) What does the market believe will be the stock price at the end of 5 years? (That is, what is P5?)

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