op hedge fund manager Sally Buffet believes that a stock with the same market risk as the S&P 500 will set at the year-end at a price of $43. the stock will pay a dividend at the year-end of $300. assume that risk-free Treasury securities currently offer an interest rate of 1.8%.

Average Rates of return on treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Portfolio Average Annual Rate of return (%) Average Premium (Extra return versus Treasury bills) (%)

Treasury Bills 3.8

Treasury Bonds 5.3 1.5

Common Stocks 11.5 7.7

What is the discount rate on stock?

What price should she be willing to pay for the stock today?