Dyer furniture is expected to pay a dividend of d1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. the company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. what is dyer's current stock price?

Market price: 28.90

Explanation:

We will calculate the stock price using the gordon dividend grow model:

D1 = 1.25

grow = g = 6% = 6/100 = 0.06

return= for the return, based on the information give, we will calculate it using the CAPM model:

risk free= 0.04

premium market=(market rate - risk free)= 0.055

beta(non diversifiable risk)=1.15    

Ke =cost of capital = return in the dividend grow formula = 0.10325  

Now, we calculate the stock price:

Stock: 28.9017341

Market price: 28.90