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Imagine a firm that has produced a historical annual return of 18%, a standard deviation of 30%, and has an estimated correlation with the market
Imagine a firm that has produced a historical annual return of 18%, a standard deviation of 30%, and has an estimated correlation with the market of 85%. The firm recently paid a dividend of $2.00 which is expected to grow for 2 years at 5% annually, and then 3% forever. If t- bills currently yield 5%, and the market is expected to yield 20% with a standard deviation of 38%, what is the equilibrium price of the stock?
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