Low Fly Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Low Fly Airline has a beta of 3.00. The intrinsic value of the stock is
A. $46.67.
B. $50.00.
C. $56.00.
D. $62.50.
A. $46.67.
6% + 3(14% 6%) = 30%; P = 7/(.30 .15) = $46.67.
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