Question
The company's beta is 1.20. The current risk-free rate (20-year Treasury bond) is 2.59%, and the expected return on the stock market is 8.09%. June
The company's beta is 1.20. The current risk-free rate (20-year Treasury bond) is 2.59%, and the expected return on the stock market is 8.09%.
June Company's stock is currently selling for $18.25 per share, and the most recent annual dividend paid was $1.15 (D0). Their dividends are expected to grow at a constant rate of 3%.
The company's Yield to Maturity (rd) is 6.5%. This is the required return for bond investors. Stock investors in this company take more risk and need to earn 3.5% more than the bond investors.
Using the CAPM, the Constant Growth Dividend Model, and the bond-yield-plus-judgmental-risk-premium methods, calculate the three costs of equity (rs). Match the costs of equity with their correct calculation methods.
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