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Homework answers / question archive / 4) You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $2 a share at the end of the year and has a beta of 7
4) You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $2 a share at the end of the year and has a beta of 7.50. The risk-free rate is 12.20%, and the market risk premium is 6%. Keller currently sells for $91 a share, and its dividend is expected to grow at some constant rate g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (1 point) 5. Martell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. If current dividend is $5 and required rate of return 21.60%, what is the value of Martell Mining's stock? (1 point)
Required rate = Risk free rate + beta(market risk premium)
Required rate = 12.2% + 7.5(6%)
Required rate = 57.2%
Required rate = (Year 1 dividend / price) + growth rate
0.572 = (2 / 91) + growth rate
growth rate = 0.55002 or 55.002%
Price at the end of 3 years = Current price (1 + rate)^periods
Price at the end of 3 years = 91 (1 + 0.55002 )^3
Price at the end of 3 years = 91 * 3.72403
Price at the end of 3 years = $338.89
