Answer:
$9.89
Explanation:
The computation of the current stock price is shown below:
= Next year dividend ÷ (Required rate of return - growth rate)
where,
Next year dividend is
= $0.75 + $0.75 × 5.50%
= $0.75 + 0.04125
= $0.79125
Required rate of return is
= Risk free rate of return + Beta × market risk premium
= 4% + 1.90 × 5%
= 4% + 9.5%
= 13.50%
And, the growth rate is 5.50%
So, the company current stock price is
= $0.79125 ÷ (13.50% - 5.50%)
= $9.89
