Question
The Companys beta is 1.25 and its dividend growth rate is 14.75%, just yesterday, it paid a dividend of $1.75. Todays share price is $53.00.
The Companys beta is 1.25 and its dividend growth rate is 14.75%, just yesterday, it paid a dividend of $1.75. Todays share price is $53.00. Furthermore, you believe that the share price moves in accordance with the dividend constant growth model. The economy wide risk free interest rate is 4.5% and the expected risk premium for the market portfolio is 9.5%. You believe that the stock represents a good investment if the expected total return implied by the dividend constant growth model exceeds the required rate of return implied by the Capital 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started