Question

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 T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 15.00%. Using the SML, what is the firm's required rate of return?

a. 17.50%

b. 17.55%

c. 17.60%

d. 17.65%

e. 17.70%

Answer 1

Using the SML, what is the firm's required rate of return

=5.25%+0.88*(15%-5.25%)

=13.83%

the above is answer..

please check for options again as options are wrong, the above answer is correct