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13 June, 12:34

Your broker has recommended that you purchase stock in National Bank & Trust, Inc. National Bank & Trust recently paid its annual dividend of $8. Dividends have consistently grown at a rate of 3.80%. Analysts estimate that the stock has a beta of 1.19. The current risk-free rate is 2.30% and the market return is 11.50%.

Assuming that CAPM holds, what is the intrinsic value of this stock?

a) $87.89 b) $96.64 c) $82.65 d) $89.42 e) $86.88

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  1. 13 June, 13:16
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    A) $87.89

    Explanation:

    To calculate the current price of National's stock we can use the following formula:

    current stock price = D1 / Kcs - g

    where:

    g = 3.8% D1 = $8 x (1 + 0.038) = $8.304 Kcs = 0.023 + 1.19 (0.115 - 0.023) = 0.13248

    current stock price = $8.304 / (0.13248 - 0.038) = $8.304 / 0.09448 = $87.89
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