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Risk Premiums and Discount rates. Top Hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P 500 will
Risk Premiums and Discount rates. 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 as a price of $50. The stock will pay a dividend at Year-end of $2. What price should she be willing to pay for the stock today? Assume that risk-free Treasury securities currently offer an interest rate of 2%. Use Table to find a reasonable discount rate.
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