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What is the required rate of return on the duo growth stock

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Reference no: EM132531016

The Duo Growth Company just paid a dividend of $1 per share. The dividend is expected to grow at a constant rate of 10% per year forever. The stock has a beta of 1.25 and the risk- free rate is 7%, while the expected rate of return of the whole market is 12%.

a) What is the required rate of return on the Duo Growth stock

b) What is your estimate of the intrinsic value of a share of the Duo Growth stock?

c) Currently the market price of the stock is $33. Is the Duo Growth stock fairly priced? Briefly explain your answer.

d) If you expect a market price per share of $36 one year from now, what is the expected rate of return on this stock? Based on your calculation from b) and e), find out if the Duo Growth stock is underpriced or overpriced?

Reference no: EM132531016

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