1. Only need work for last two parts in bold. You forecast that Staples will pay a dividend of $3.45 a share at the end of one year.. You estimate that dividends will grow at 4.8% per year on average for the long term. Staples has a beta of .78. You estimate the appropriate risk-free rate to be 3.5%, and the expected return on the market portfolio (proxied by the S&P 500) to be 10% Staples current price is $88.78 per share

What is your estimate of the required return?

.035 + .78(.1-.035) = .0857

What is your estimate of the stocks intrinsic value?

3.45 / (.0857 - .048) = 91.51

What is the markets required return (market capitalization rate) for Staples?

Div 1 / Po + g

( 3.45 / 88.78 ) + .048 = .0868

Assume that your required rate of return increases to 11%, all else the same. Will your estimate of the Intrinsic Value (IV) be higher or lower than in the original case?

What is your new estimate of the intrinsic value?