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The problem asks for the intrinsic value per share of Stock A, using information provided about its beta, growth rate, dividends, and other financial parameters. We can calculate the intrinsic value using the **Gordon Growth Model (Dividend Discount Model)**, which is:

\[
P_0 = \frac{D_0 \times (1 + g)}{r - g}
\]

Where:
- \( P_0 \) is the intrinsic value of the stock.
- \( D_0 \) is the dividend just paid (₹2.00).
- \( g \) is the constant growth rate of dividends (8% or 0.08).
- \( r \) is the required rate of return (calculated using CAPM formula).

The required rate of return \( r \) can be calculated using the **Capital Asset Pricing Model (CAPM)**:

\[
r = r_f + \beta \times (r_m - r_f)
\]

Where:
- \( r_f \) is the risk-free return (10% or 0.10).
- \( \beta \) is the stock's beta (1.5).
- \( r_m \) is the market return (15% or 0.15).

### Step 1: Calculate the required rate of return \( r \)
\[
r = 0.10 + 1.5 \times (0.15 - 0.10) = 0.10 + 1.5 \times 0.05 = 0.10 + 0.075 = 0.175 \text{ or } 17.5\%
\]

### Step 2: Use the Gordon Growth Model to calculate the intrinsic value
\[
P_0 = \frac{2.00 \times (1 + 0.08)}{0.175 - 0.08} = \frac{2.00 \times 1.08}{0.095} = \frac{2.16}{0.095} = 22.74
\]

Thus, the intrinsic value per share of Stock A is ₹22.74.

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Would you like more details on any step or have any other questions?

Here are 5 related questions to deepen your understanding:
1. How does the CAPM model help in determining the required rate of return?
2. What would happen to the intrinsic value if the dividend growth rate increased?
3. How does a higher beta influence the required return and intrinsic value of a stock?
4. Can the Gordon Growth Model be used for stocks with highly volatile dividends?
5. What role does the risk-free rate play in the CAPM model?

**Tip:** The Gordon Growth Model works best for companies with stable dividend growth. For companies with irregular dividend payouts, other valuation models may be more appropriate.

The risk-free return is 10 percent, and the return on the market portfolio is 15 percent. Stock A's beta is 1.5; its dividends and earnings are expected to grow at the constant rate of 8 percent. If the previous dividend per share of Stock A was ₹ 2.00, what should be the intrinsic value per share of Stock A?

Learn how to calculate the intrinsic value of Stock A using the Gordon Growth Model and the Capital Asset Pricing Model (CAPM). This problem involves determining the required rate of return and applying a constant dividend growth rate of 8% for Stock A with a beta of 1.5.

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