Homework Answers
a. Required rate of return = Risk-free rate + Beta(Market return - Risk-free rate)
Required rate of return = 0.03 + 2(0.08 - 0.03)
Required rate of return = 0.13 or 13%
b. Value of stock = D0(1 + g) / (rs - g)
Value of stock = $4.50(1 + 0.04) / (0.13 - 0.04)
Value of stock = $52
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