Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per...

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Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the

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Answer 1

Answer #1

We use SML to get market risk premium:

Required rate of return = Risk-free rate + Market risk premium

0.1250 = 0.0525 + Market risk premium

Market risk premium = 0.0725 or 7.25%

Required rate of return = Risk-free rate + Beta(Market risk premium)

Required rate of return = 0.0525 + 0.88(0.0725)

Required rate of return = 0.1163 or 11.63%

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Answer 2

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