Question
GiantEnterprises' stock has a required return of 14.4%. Thecompany, which plans to pay a dividend of $1.55 per share in the comingyear, anticipates that its
GiantEnterprises' stock has a required return of 14.4%. Thecompany, which plans to pay a dividend of $1.55 per share in the comingyear, anticipates that its future dividends will increase at an annual rate consistent with that experienced over 2013-2019 period, when the following dividends werepaid:
2019 $1.45
2018 $1.35
2017 $1.27
2016 $1.18
2015 $1.11
2014 $1.03
2013 $0.97
a.If therisk-free rate is 5%, the risk premium onGiant's stock is ____%?
b.Using theconstant-growth model, the value ofGiant's stock is $_____?
c.Explain whateffect, ifany, a decrease in the risk premium would have on the value ofGiant's stock. A decrease in the risk premium would ________ the required rate ofreturn, which in turn would _________ the price of the stock.
All the information is there.
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