Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

the companys beta is 1.1 and its divident growth rate is 13.35% just yesterday it paid a divident of $1.33. Todays share price is $55.00.

the companys beta is 1.1 and its divident growth rate is 13.35% just yesterday it paid a divident of $1.33. Todays share price is $55.00. You believe that todays share price equals todays intrinsic value. Furthermore, you believe that the share price moves in accordance with the dividend constant growth model. The economy wide risk free interest rate is 2.5% and the expected risk premium for the market portfolio is 6.5%. You believe that the stock represents a good investment in the exaggerated total return implied by the dividend constant growth model exceeds the required rate of return implied by the capitol asset pricing model. What is the required rate of return and expected rate of return for the stock? Should you buy it: why or why not? Show all work

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance In A Changing World

Authors: Peter Birch Sorensen

1998th Edition

0333682211, 978-0333682210

More Books

Students also viewed these Finance questions

Question

Give an example of each type of cost in accounting?

Answered: 1 week ago