Question $4$:

Suppose a company has a beta of $1\mathrm{.}1.$ The risk$-$free rate is $5\mathrm{.}6\%,$ and the equity risk premium is $6\%.$

The required rate of return is calculated based on CAPM model Risk$-$free rate $+$ Beta $$ Risk

premium$)$ The current dividend of $$2\mathrm{.}00$ is expected to grow at $5\%$ indefinitely. The price of the stock

is $$40.$

Estimate the value of the company's stock.

Determine the constant dividend growth rate that would be required to justify the market price

of $$40.$