Question

Phoenix Solar is expected to pay a dividend of $3.60 in the upcoming year, and their stock is trading in the market today at $60 per share. Dividends are expected to grow at the rate of 9.6% per year. If the risk free rate of return is 4% and the expected return on the market portfolio is 12%, what is the stock's beta? Your answer should be between 0.34 and 2.12, rounded to 2 decimal places, with no special characters.

Answer 1

Dividend (D1)= $3.60
Price of Share (Po) = $60 per share
Growth Rate (g) = 9.6%
Risk free rate of return (Rf)= 4%
Market Return (Rm)= 12%
Return on share (Ke)
Ke =	D1	+	g
Po
=	3.6	+	9.60%
60
=	15.60%
As per CAPM Model,
Ke = Rf + Beta(Rm-Rf)
15.60% = 4% +Beta(12%-4%)
Beta = 1.45