Problem 11-5 Risk Premiums and Discount Rates (LO1) 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 $50. The stock will pay a dividend at year-end of $2. Assume that risk-free Treasury securities currently offer an interest rate of 2%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2015 (figures in percent per year) are as follows Average Premium (Extra return versus Treasury bills) (%) Average Annual Rate of Return (%) Portfolio Treasury bills Treasury bonds Common stocks 5.3 11.4 1.5 7.6 What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price