Question
Assume a major investment service has just given Big Lake Realty its highest investment rating, along with a strong buy recommendation. As a result, you
Assume a major investment service has just given Big Lake Realty its highest investment rating, along with a strong buy recommendation. As a result, you decide to take a look for yourself and to place a value on the company's stock. Here's what you find: This year, Big Lake paid its stockholders an annual dividend of
$5.35
a share, but because of its high rate of growth in earnings, its dividends are expected to grow at the rate of
9%
a year for the next five years and then to level out at
6%
a year. So far, you've learned that the stock has a beta of
1.13,
the risk-free rate of return is
2.6%,
and the expected return on the market is
11.6%.
Using the CAPM to find the required rate of return, put a value on this stock.
Question content area bottom
Part 1
Using the CAPM, the required rate of return on the investment is
enter your response here%.
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