As per CAPM |
expected return = risk-free rate + beta * (Market risk premium) |
Expected return% = 3.4 + 0.6 * (8.4) |
Expected return% = 8.44 |
Price in one year = current year*(1+return)-dividend = 67.5*(1+0.0844)-1.81
=
71.39 |
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10.
Barton Industries estimates its cost of common equity by using
three approaches: the CAPM, the bond-yield-plus-risk-premium
approach, and the DCF model. Barton expects next year's annual
dividend, D1, to be $2.40 and it expects dividends to
grow at a constant rate gL = 5.7%. The firm's current
common stock price, P0, is $23.00. The current risk-free
rate, rRF, = 4.7%; the market risk premium,
RPM, = 6%, and the firm's stock has a current beta, b, =
1. Assume...
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