Question 5 Revisions:

Casinooi just paid a dividend of $1 per share. The dividend is expected to grow at a constant rate of 10% per year forever. The stock has a beta of 1.25 and the risk- free rate is 7%, while the expected rate of return of the whole market is 12%.

a) What is the required rate of return on the Casinooi stock

b) What is your estimate of the intrinsic value of a share of the Casinooi stock?

c) Currently the market price of the stock is $33. Is the Casinooi stock fairly priced? Briefly explain your answer.

d) If you expect a market price per share of $36 one year from now, what is the expected rate of return on this stock? Based on your calculation from a) and d) find out if the Casinooi stock is underpriced or overpriced?