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Suppose that the risk-free rate is Rf = 2.70% and the risk-premium is E(Rm) - Rf = 7.23%. According to Gordons Growth Model,

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Answer #1

rs = Rf + B[E(Rm) - Rf]

rs = 0.0270 + 1.26(0.0723)

rs = 0.118098 or 11.8098%

Stock price = D0(1 + g) / (rs - g)

Stock price = $24.40(1.0562) / (0.118098 - 0.0562)

Stock price = $416.35

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