Question
Hey just struggling with these revision question can you answer it for me? Part A Company ABC is expected to pay a dividend of $3.00
Hey just struggling with these revision question can you answer it for me?
Part A
Company ABC is expected to pay a dividend of $3.00 forever from Dec 31, 20x1.
The market required return is 15% p.a.
Required
If the share is trading at $60 on Jan 1, 20x1, what is the implied constant growth rate in dividends for the future?
Part B
Company ABC does not pay dividend.
Its stock is currently priced at $40, and is expected to increase in price to $45 by end of the year.
The market risk premium is 6%; the risk-free rate is 5%.
Required
Is the stock overpriced, underpriced, or appropriately priced accordingly to CAPM, if the stock has a beta of 0.6?
Please justify your answer with appropriate calculations.
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