What is the discount rate on the stock?

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

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 $40. The stock will pay a dividend at year-end of $3.00. Assume that risk-free Treasury securities currently offer an interest rate of 1.5%. Average rates of return on Treasury bills, government bonds, and common stocks, 1900-2017 (figures in percent per year) are as follows. Average Premium (Extra return versus Treasury bills) (%) Portfolio Treasury bills Treasury bonds Common stocks Average Annual Rate of Return (%) 3.8 5.3 11.5 1.5 7.7