Question
A security has a beta of 0.8; the riskless rate is 4%, and the expected market risk premium is 6% per year. The dividend for
A security has a beta of 0.8; the riskless rate is 4%, and the expected market risk premium is 6% per year. The dividend for this security next year is anticipated to be $2.00 per share; the dividend is expected to grow at 3% in perpetuity. The stock is currently trading at $38 a share.
If the CAPM is true, is the security in equilibrium?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine if the security is in equilibrium we need to calculate its expected return using the Ca...
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Step: 2
Step: 3
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Financial Analysis With Microsoft Excel
Authors: Timothy R. Mayes
9th Edition
0357442059, 9780357442050
