MKT cap = 11B Dividend Yiield = 2% 200MM Shares outstanding RFF= 5% Beta = 2 LT Growth = 9% NI = 780MM What is the share price? 1. $45 2. $50 3. $55 4. $60
3?? MCap/Shares Outstanding = 55! but that’s not using the GGM - is this the entire question? hahah…this is going to be so wrong!
you are missing info…you cant calc the required return with the info you have.
I’m paraphrasing this from the BSAS Mock. Question Number 37. I hope I’ve included all the neccesary info as they gave a lot. I can’t for the life of me find where they calculate the dividend measure. Answer is 1.1(1+.09)/ (.11-.09) = 59.95 I’m wondering if there is something with the dividend yield.
Required return of MKT = 8% Sorry.
seems like using the last piece of info gets you $55 per share as well. although it might off by one year. is the dividend yield current or one year out?.. obviously the market cap over shares gets you there too.
Div Yield is D/P = 0.02 D = Mkt cap * 0.02 = 11B * .02 = 220MM D/share = 220/200 = 1.10 D1 = 1.10*1.09 = 1.199 1.199 / .11 - .09 = 59.95
the “off by one year” does make it 59.95… another of my many criticisms is how vague they are with language. university exam never, ever this way.
if you assume that’s the dividend yield based on the last payment then it gets you to 59.95 Div = DY*MP Div = .02*(11000/200) Div = 1.1 per share Using the GGM now V = 1.1*(1.09) / (0.11 - 0.09) = 59.95 where K(e) was found by taking 5 + 2*(8 - 5) = 11%
^^slouis beat me to it 
I never would have figured that out. Seems so easy when the answer is there though…
Stuff like this is SCARY. I couldn’t figure this simple thing out and bombed an entire item set as it kept asking for the current dividend. Thanks St. Louis. I’ll mail you a fruitcake.
just curious- did the question say specifically what should the share price be using the GGM? agree w/ all of the calcs above, makes sense, but if all it said was “what’s the share px”- i would’ve been inclined just to take mkt cap/shrs outstanding = $55.
thanks banny! I’m not the only one looking for shortcuts here 
SlaveII Wrote: ------------------------------------------------------- > Required return of MKT = 8% Sorry. 4. well now I can do the calculations… MKT Price = MKT CAP / # shares = 11B / 200MM = $55 Dividend today = DY * Price of mark = .02 * 55 = $1.10 Dividend in a year = (D0 * (1+g))= $1.10 * 1.09 = $1.20 R = RFR+B(MRP) = 5%+2(8-5)=11 GGM Price = 1.20/(.11-.09) = $60 edit typo on GGM D1