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Google stock has a beta of 1.39. The risk free rate in the economy is 2.00% while the market portfolio risk premium is 7.00%. Google is currently priced at $862.00 per share. Google will not pay a dividend in the near future. If the stock meets its required return over the next five years, what is an estimate for its selling price five years from today

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haseebkhuhro256

Answer:

Explanation:

first of all we need to identify required rate of return

as per the given date in the question we can apply Capita asset pricing model to identify the Ke that is cost of equity.

We have

Ke = Rf+(Rm-Rf)*beta

Ke=2%+(7%-2%)*1.39

Ke=2%+(5%)*1.39

Ke=2%+6.95

Ke=8.95

Now we need to identify the share price after five year with same return

Share price =  862*(1+8.95%)^5

Share price after five year = 1323.255

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