A Stock Is Not Expected to Pay a Dividend Over

Multiple Choice

A stock is not expected to pay a dividend over the next four years. Five years from now, the company anticipates that it will establish a dividend of $1.00 per share . Once the dividend is established, the market expects that the dividend will grow at a constant rate of 5 percent per year forever. The risk-free rate is 5 percent, the company's beta is 1.2, and the market risk premium is 5 percent. The required rate of return on the company's stock is expected to remain constant. What is the current stock price?

A) $ 7.36
B) $ 8.62
C) $ 9.89
D) $10.98
E) $11.53