Question
Assume that the yield on governmental securities is 8%, the market risk premium 7%, and the stock of General Electric (NYSE:GE) has a beta coefficient
Assume that the yield on governmental securities is 8%, the market risk premium 7%, and the stock of General Electric (NYSE:GE) has a beta coefficient of 1.2. GE retains 60% of its earnings, and the latest earnings announced were $10 per share.
Dividends were just paid and are expected to be paid annually. You expect that GE will earn return on equity of 20 per year on all reinvested earnings forever.
A. Compute the intrinsic value of a share of GE stock. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on GE stock?
Assume that the yield on governmental securities is 8%, the market risk premium 7%, and the stock of General Electric (NYSE:GE) has a beta coefficient of 1.2. GE retains 60% of its earnings, and the latest earnings announced were $10 per share.
Dividends were just paid and are expected to be paid annually. You expect that GE will earn return on equity of 20 per year on all reinvested earnings forever.
A. Compute the intrinsic value of a share of GE stock. If the market price of a share is currently $100, and you expect the market price to be equal to the intrinsic value one year from now, what is your expected 1-year holding-period return on GE stock?
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