ZippleCrunch Corp. will pay a dividend of $2.23 per share at the end of next year (end of year 1) and this dividend is expected to grow at a 2 percent annual rate forever. The risk free rate is 2.5% and the beta is 1.5. You need to calculate the equity market risk premium based on historical average returns. You have done some fancy math and indexed things from which you can calculate average returns of the equity market risk premiums. 2 years ago the index was 1.0, last year it was 0.6 and this year it was 1.02.

First calculate two returns based on the three years of historical indexed data (same as part A). Then, using the geometric mean approach, determine the average of these two returns (which you can then use as the equity market risk premium). Using this number as one of the inputs, calculate the cost of equity and the value of ZippleCrunchs stock.