How do find what is the expected current price

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Recently, an analysis of Caterpillar Inc. found that its equity beta (the beta on its stock) is 1.03 (this puts its volatility right in line with the broader market). The most recent annual dividend is $4.12/share. A survey of economist finds that the perceived market risk premium is around 6.5%. As of Oct 1, 2020, the yield on a 30-year U.S. Treasury was 1.45%. Given this information, answer the following question.

Problem 1: a. Assume that dividends are expected to grow abnormally for the next 3 years at a rate of 10%. Then, long-term dividend growth is expected to stabilize at 4% annually. Given this information, what is the expected current price?

Reference no: EM132717385

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