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 $43. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.8%.

Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2015 (figures in percent per year) are as follows.

What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.)

What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Assignment Print View 1 of 1 http://ezto.mheducation.com/hm.tpx?todo=c15SinglePrintView&singleQ... 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 $43. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.8%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2015 (figures in percent per year) are as follows. Average Annual Rate of Return (%) 3.8 5.3 11.4 Portfolio Treasury bills Treasury bonds Common stocks Average Premium (Extra return versus Treasury bills) (%) 1.5 7.6 What is the discount rate on the stock? (Enter your answer as a percent rounded to 2 decimal places.) Discount rate % What price should she be willing to pay for the stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price References Worksheet Difficulty: Basic Learning Objective: 11-01 Estimate the opportunity cost of capital for an \"average-risk\" project. 9/24/2017, 8:01 PM