The risk-free rate of return is 7.5%, the expected rate of return on the market portfolio is 14%, and the stock of Xyrong Corporation has a beta coefficient of 2.8. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $25 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 16% per year on all reinvested earnings forever.
What is the intrinsic value of a share of Xyrong stock?
If the market price of a share is currently $67, and you expect the market price to be equal to the intrinsic value one year from now, calculate the price of the share after one year from now.
What is your expected one-year holding-period return on Xyrong stock?