Portman industires just paid a divident of $2.40 per share. the company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. after teh next year, though, portman's divident is expected to grow at a constant rate of 2.40% per year. the risk free rate is 3.00%, the market risk premium is 3.60% and pormans beta is 1.90.assuming taht the market is in equilibriumwhat are the dividends one year from is the horizon is the intrinsic value of portman's is the expected dividend yield for portmant stock today? a. 5.95%
b. 7.44%
c. 7.26%
d. 7.98%

dividend one year D1 = $2.688

horizon value P1 =  $36.9961

intrinsic value of portman stock P = $36.1290

dividend yield = 7.44 %

so correct option is b

Explanation:

given data

dividend = $2.40 per share

expected to grow = 12%

constant rate = 2.40%

risk free rate = 3.00%

market risk premium = 3.60%

pormans beta = 1.90

solution

we find first dividend one year from now is

dividend one year = D × (1+g)    ..................1

here D is given dividend and g is expected to grow rate put here value we get

dividend one year = $2.40 × (1+12%)

dividend one year D1 = $2.688

and

now we find cost of  equity that is

cost of equity Ke = Rf + β ×market risk premium    ..............2

Rf is risk free rate and β is pormans beta put these value

cost of equity Ke = 3% + (1.9 × 3.6%)

cost of equity Ke  = 0.0984 = 9.84 %

so

horizon value is here

horizon value =   ..................3

put here all value

horizon value =

horizon value P1 =  $36.9961

and

intrinsic value of portman stock is

P =     ...................4

put here value

P =

intrinsic value of portman stock P = $36.1290

and

dividend yield is here  express as

dividend yield =        ......................5

put here value

dividend yield =

dividend yield = 7.44 %

so correct option is b

i might look it up later.