A production company not so long ago paid a dividend of $2.50 per share and plans to increase its dividends by 10% in the first year, 15% in year 2, 20% in year 3 then at a constant rate of 5% thereafter. The T-bills are 6,50% and the return on the market is 25%. The standard deviations are 13 and 10 percent for the company and the market respectively. The correlation coefficient between the two is 0,75.

1. Calculate the risk premium. What does this mean?

2. Determine the required rate of return using Capital assest pricing model

3. Determine the intrinsic value of the share using the Discount dividend model

4. Would you buy or sell this share?