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Stock Valuation Problem: The English Corporation has a beta of 1.30x, the risk-free rate of interest is currently 9% and the required return on the

Stock Valuation Problem:

The English Corporation has a beta of 1.30x, the risk-free rate of interest is currently 9% and the required return on the market portfolio is 12%.The Company plans to pay a dividend of $1.30 per share in the coming year and anticipates that future dividends will increase at an annual rate consistent with that experienced over the 2006 - 2009 period as shown below:

YearDividend per share

2009$1.25

2008$1.17

2007$1.15

2006$1.10

(I calculate the compound annual growth rate of dividends to be 4.35%, as follows :)

Financial calculator keystrokes:

1.10+|-PV

3N

0PMT

1.25FV

CPTI/Y=4.35% USING the CONSTANT DIVIDEND GROWTH MODEL TO ESTIMATE THE VALUE OF ENGLISH COMPANY COMMON STOCK

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