Answer:
The value of the stock is $19.18
Explanation:
First we have to find the required rate of return on the bond using the capm formula. Capm = Risk free rate + Risk premium of the stock
=7%+4%= 11%
The required return on the stock is 11%. Now we can use the dividend discount method to find teh value of the stock.
The formula is Dividend*(1+G)/R-G
Where R is the required rate of return and G is the growth of the stock.
In this case the dividend is expected to remain at 2.10 so we assume the growth of the stock to be 0.
2.10/0.11=19.18
