Question
Please help need an answer soon. Will upvote kindly. Top hedge fund manager Sally Buffit believes that a stock with the same market risk as
Please help need an answer soon. Will upvote kindly.
Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will sell at year-end at a price of $57. The stock will pay a dividend at year-end of $2.00. 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, 19002020 (figures in percent per year) are as follows.
Portfolio | Average Annual Rate of Return (%) | Average Premium (Extra return versus Treasury bills) (%) |
---|---|---|
Treasury bills | 3.7 | |
Treasury bonds | 5.4 | 1.7 |
Common stocks | 11.5 | 7.7 |
What is the discount rate on the stock?
Note: Enter your answer as a percent rounded to 2 decimal places.
What price should she be willing to pay for the stock today?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
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