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 at a price of $55. The stock will pay a dividend at year-end of $2.50. Assume that risk-free Treasury securities currently offer an interest rate of

Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2020 (figures in percent per year) are as follows.

Average Premium (Extra

Average Annual Rate return versus Treasury

of Return (%)

bills) (%)

3.7

5.4

11.5

1.7

7.7

a. What is the discount rate on the stock?

Note: Enter your answer as a percent rounded to 2 decimal places.

b. What price should she be willing to pay for the stock today?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.