A company currently pays a dividend of $2 per share (Do=$2). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% therafter. The company's stock has a beta of 1.2, the risk free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?
The answer in the book says it is $50.50, but I'm coming up w/a slightly different number. Can you explain how to get to the correct answer?