Todd mountain development corporation is expected to pay a dividend of $3 in the upcoming year. dividends are expected to grow at the rate of 8% per year. the risk-free rate of return is 5%, and the expected return on the market portfolio is 17%. the stock of todd mountain development corporation has a beta of 0.75. using the constant-growth ddm, the intrinsic value of the stock is

Intrinsic value of the stock =  $50

Explanation:

Dividend paid in the upcoming year, D = $3

Dividends are expected to grow at the rate, g = 8% per year

Risk-free rate of return, Rf = 5%

Expected return on the market portfolio, Rm = 17%

Beta = 0.75

Intrinsic value of the stock, Po = ?

Calculating Cost of Equity (Ke)-

Ke = Rf + Beta (Rm - Rf)

Ke = .05 + 0.75 (0.17 - 0.05)

Ke = 0.05 + 0.09

     = 0.14

Ke = 14%

Calculating Intrinsic value of stock (P0)

Po = $50

the correct answer is:

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