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Problem 5 Adidas stock has a beta of 1.3. The risk-free rate is 2.7% and the expected return on the market portfolio is 10%. The

Problem 5

Adidas stock has a beta of 1.3. The risk-free rate is 2.7% and the expected return on the market portfolio is 10%. The company has just paid an annual dividend of $0.25. Dividends are expected to grow by 2% per year.

Part 1

What is the appropriate discount rate?

Part 2

What is the intrinsic value (fair price) of the stock?

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